The Philippines Central Bank Statement

Author: IFLR Correspondent | Published: 24 Sep 2019
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The global economic landscape continues to undergo transformation as far-reaching forces and global megatrends exert their impact on markets and economies. These forces include the rebalancing of the world economy, climate change, disruptive technologies, and–what some analysts would call– a retreat from multilateralism.

The unpredictable impact of these trends contributes to the increased external uncertainty faced by the Philippine economy. The challenge of formulating economic policy under such a backdrop is keeping policymakers at the Bangko Sentral ng Pilipinas (BSP) on their toes and edging them away from their 'business as usual' stance.

The good news is that despite the external headwinds, the Philippine economy continues to buck the trend. Real GDP grew by 5.6% in Q1 2019, making the Philippines one of the fastest growing economies in Asia. This extends the country's streak of 20 consecutive years of uninterrupted growth.

The quality of growth should also be emphasised. Economic expansion is driven by broad-based factors, with the re-emergence of the industry sector, particularly manufacturing, as another key growth driver alongside the services sector.

The positive alignment between growth and inflation has been a sustained narrative. Achieving price stability amid a challenging global and domestic environment is partly reflective of the BSP's credibility as an 'inflation targeter'.

In June 2019, inflation eased at 2.7%, bringing the year-to-date average to 3.4% for the first six months of 2019. Going forward, the BSP's latest baseline forecasts indicate that inflation will continue to ease, settling within the 3.0% ± 1.0 percentage point target range for 2019 and 2020.

The low inflation environment, along with expectations of a further slowdown in inflation momentum in the succeeding months, is expected to lend strong support to various sectors of the economy and steer the domestic economy towards the national government's growth target for 2019.

Indeed, the Philippine economy has achieved a fine balance between high economic growth and a benign inflation environment.

Nonetheless, the BSP remains mindful of the uncertainty in the rapidly evolving operating environment and continues to enhance its conduct of monetary policy-making. In fact, the recently amended BSP Charter has strengthened its capability to promote low and stable inflation, the stability of the financial system and the efficiency of the country's payment systems. It also embodies a package of reforms that will further align the BSP's operations with global best practice, improve the BSP's corporate viability, and enhance its capacity to craft proactive policies amid growing interlinkages within the financial markets and the broader economy.

The BSP has also continued to introduce refinements in monetary policy implementation under its Interest Rate Corridor (IRC) system. These enhancements are aimed at further improving the BSP's ability to respond to fluctuations in liquidity conditions and strengthen the transmission of monetary policy.

Rest assured, the BSP stands ready to go beyond 'business as usual' to support a strong economy and promote a high quality of life for all Filipinos.