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Monetary policy appropriate – BSP

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By Lee C. Chipongian

After signalling a “hold” position for the rest of the year, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the Monetary Board’s current stance on monetary policy remains “appropriate” and supportive of a full-year six percent gross domestic product (GDP) growth.

MB file

MB file

Diokno, commenting after the government reported a positive 6.2 percent GDP turnout for the third quarter against the BSP’s expectations of 5.8 percent to six percent, is more confident that the 2019 GDP will achieve the desired six percent level.

“The six percent full-year GDP growth target is a tall order, after a slower than expected first half, but still doable,” Diokno said Thursday.

He is also confident that the Monetary Board’s decision to reduce interest rates by 75 basis (bps) this year – partly to encourage economic growth which is complemented by a manageable inflation – is a timely and relevant policy action when they made it.

“(The) BSP’s current monetary policy stance is appropriate,” said Diokno.
He emphasized that since the latest GDP number “exceeds the consensus forecast” this for him, “suggest that the Duterte administration’s ‘catch-up’ plan is working.”

Diokno also said that the country’s growth performance “is one of the fastest among relatively large economies, amidst a slowing global economy.”

BSP Deputy Governor Francisco G. Dakila Jr. has said that the BSP has a fourth quarter GDP assumption of the “midpoint of the 6-7 percent (government) target.”

The government reported slower-than-expected GDP numbers in the first quarter of 5.6 percent (a four-year low) and the sluggish performance continued in the second quarter with 5.5 percent because of budget constraints. The delays in the implementation of the 2019 national budget in the first three months of the year extended its impact to the whole of the first semester, dragging down growth. This prompted the BSP to cut policy rates in May, August and September to prop up GDP numbers.

Diokno said he expects growth to remain robust based on the “higher-frequency demand indicators (that) point to an overall positive outlook for the domestic economy” such as the composite Purchasing Managers’ Index and BSP’s own surveys, other indexes and forecasting methods.

He has already communicated to the market that for the last two Monetary Board policy meetings for the year – on November 14 and December 12 – the BSP is likely to maintain its current monetary policy stance as the “market process what BSP has done this year” which includes lowering banks’ reserves ratio by a total 400 bps as another growth stimulus.

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