MANILA – Risk brought about by the high inflation rate is already history as far as the Philippines is concerned this 2019, although lingering worries on the US-China trade remain an obstacle.
The elevated rate of price increases in 2018, which peaked at 6.7 percent in September and October, made Philippine monetary officials hike the Bangko Sentral ng Pilipinas’ (BSP) key policy rates by a total of 175 basis points to help rein in inflationary expectations.
This decision complemented with the government’s fiscal measures and contributed to the deceleration of inflation rate to as low as 0.8 percent last October.
Last November, inflation started to normalize with a rate of 1.3 percent, bringing the 11-month average to 2.6 percent.
Monetary officials forecast inflation to average at 2.4 percent this year and 2.9 percent next year and the next. All of these figures are within the government’s 2-4 percent target until 2021.
Aside from the policy rate reductions this year due to slower inflation rate, monetary officials also slashed banks’ reserve requirement ratio (RRR) by as much as 400 basis points for the big banks.
This is in line with the bid to make it at par with other countries in the region.
The RRR cuts also increased efficiency of the domestic financial system as it lowers financial intermediation costly.
It also increases domestic liquidity and helps accelerate lending activities needed by the continued strengthening of the economy.
BSP Governor Benjamin Diokno, who took the helm starting March this year, said he will further bring the central bank closer to the people.
During the Bankers Reception hosted by the BSP last July, the central bank chief said “a central bank cannot operate from an ivory tower”.
“It is important that BSP stakeholders understand what we are mandated to do. It is crucial that our stakeholders trust our integrity and our capability to carry out our mandate,” he said.
The BSP has three pillars namely price stability, financial stability, and efficient payments and settlements system.
It ensures price stability through proper management of inflation rate and external debt, allowing an efficient delivery of credit to the banks, which in turn will extend financing to their clients.
Part of this is the move to provide effective foreign exchange policies and public awareness campaigns on the role of the central bank.
On financial stability, BSP executives continue to conduct off-site surveillance and on-site examinations not just on banks but also BSP-supervised financial institutions (BSFIs), sustain approval of virtual currency (VC) exchanges, push for growth of the Personal Equity and Retirement Account (PERA) initiatives and address issues involving financial services.
On the efficient payments and settlements system, the BSP further improved policies on electronic banking, block chain-based remittance platforms, and digital payments.
Diokno earlier said that digital payment is now among the normal mode of payments, thus, the need to enhance internet access and mobile phone ownership not just for social connections but also on safe and convenient financing services.
On top of these programs is the financial inclusion bid targeted to increase Filipinos’ inclusion in the formal banking system for them to experience the benefit of the expanding economy.
In summarizing the BSP’s achievements this year, Diokno said they will continue to push for reforms that would support the domestic economy since this remains among the strongest and resilient in the world to date.
These characteristics, he said, are backed by the low inflation rate, improvement on unemployment rate to historic low of 4.5 percent, the under-employment rate, and the poverty incidence to 16.6 percent in 2018, with the latter declining by about 2 percent annually in recent years, which, he noted, is unprecedented.
“So we’re very optimistic that maybe before the end of this administration’s term poverty incidence will be somewhere around 10 percent,” he said.
Aside from these factors, the central bank chief also said that the country’s gross international reserves (GIR) continue to remain high, which amounted to USD6.4 billion as of end-November this year.
The country’s total foreign currency reserves are equivalent to 7.5-month worth of imports of goods and services and payments of primary income. This is higher than the international standards of equivalent of 3-month worth of import and services.
“And I’m optimistic that 2020 will be even better,” he added.
Asked for his thoughts on how the BSP fared this year, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort gave the central bank a rating of 90 percent.
“The BSP has done a great job in easing monetary policy, though there is still leeway for additional cut/s on policy rates to somewhat take away some of the monetary policy tightening/rate hikes in 2018,” he told the Philippine News Agency (PNA).
The economist said the 75 basis points cut in the BSP’s key policy rates this year “still resulted to some reduction in borrowing costs/financing costs by businesses, consumers, government, and other institutions, fundamentally due to the easing trend in inflation to 3.5-year lows.”
He explained that these cuts were boosted by the RRR reductions “that effectively infused more than PHP450 billion in additional peso funds/liquidity into the banking system/financial system, thereby allowing banks increase their lending activities/business.”
He said the policy rate and RRR cuts allowed banks to post higher interest rate margins and increased their return on equity (ROE).
“Growth in banks' loan business would likely pick up/increase in the coming months in view of the lagged positive effects of monetary easing/lower RRR in terms of faster loan growth (could accelerate from among the slowest in 9 years), increased economic activities, faster growth in investments/capital formation, and faster economic/GDP growth in the coming quarters,” he said.
Ricafort, meanwhile, said that decline of inflation rate to 0.8 percent last October gave the BSP additional flexibility to slash its key rates further, citing also the Federal Reserve’s decision to cut by another 25 basis points its short-term interest rates.
“Any further easing in monetary policy could still have supported and justified the still relatively slower local economic/GDP (gross domestic product) growth due to slower global economic growth/outlook largely brought about by the lingering US-China trade war as well as underspending by the government largely due to the 3.5-month delay in the approval in the 2019 national budget and the 45-day election ban on some infrastructure/construction projects by the government,” he added.
Domestic growth posed slower growth in the first half this year on account of the delay in the approval of this year’s national budget, which was only signed into law mid-April, and the impact of the election bank on construction.
Growth, as measured by gross domestic product (GDP), slowed to 5.6 percent in the first quarter this year from quarter-ago’s 6.3 percent.
It further slowed to 5.5 percent in the following quarter but recovered in the third quarter to 6.2 percent.
Average growth as of end-September this year stood at 5.8 percent, lower than the adjusted 6-6.5 percent target band for this year, which was previously set between 6-7 percent. (PNA)
