Economy still on track to hit 6.5% to 7.5% growth, BSP exec says

The Philippine economy is still on track to hit the projections of the government’s economic cluster even with the most aggressive policy rate hike to date, according to the Bangko Sentral ng Pilipinas (BSP).

At a virtual briefing, BSP Deputy Governor Francisco Dakila Jr. said the economy is still poised to hit the 6.5% to 7.5% growth range adopted by the Development Budget Coordination Committee (DBCC).

“Yes, very much so. We see the economy recovering robustly especially with the opening up of the economy. We actually see that the growth of the economy will be closer to the upper bound of the DBCC numbers,” he told reporters.

Dakila’s remarks came after the Monetary Board of the BSP hiked policy rates by 75 points effective July 14 — the overnight reverse repurchase facility to 3.25%, the overnight deposit facility to 2.75%, and the overnight lending facility to 3.75%.

“That comes on the back of a strong first-quarter performance and as you can see, second quarter is very likely also strong or may be even stronger than the first-quarter numbers,” Dakila said.

The latest rate hike was an off-cycle move of the Monetary Board, with its next meeting scheduled on August 18, 2022.

Dakila said the Monetary Board will still meet on the said date as scheduled to discuss monetary policy, as he noted that the body will continue to be data-dependent moving forward.

The central bank official explained Thursday’s rate hike as he cited surveys conducted with the private sector, indicating higher inflation expectations for the year.

“Looking at the data so far, we could see that there had been some further second-round effects that were appearing and for example, we had some preliminary results of our survey,” he said.

Preliminary survey results showed a mean inflation forecast of 5.4% this year, higher than the 4.9% recorded in the June survey. The forecast for 2023 was also hiked to 4.4% from 3.9% previously.

Dakila did not give out updated inflation forecasts of the BSP, as he said these will be announced after the policy meeting next month.

The latest projections of the central bank indicate that inflation could average 5.6% in the second half of 2022, and average 5.0% for the full year. This is higher than the government target range of 2.0% to 4.0%.

In terms of the reserve requirement or the amount of cash banks are required to hold in their reserves, Dakila said the central bank would continue to pursue a reduction, but did not elaborate on the timing.

Former BSP Governor Benjamin Diokno — who has moved to the Department of Finance (DOF) as its Secretary — earlier said he wants to cut the reserve requirement to single digits within his term.

“I’m sure that this is also the direction that we would be pursuing. Of course the timing of the reserve requirement adjustment remains a continuing discussion,” Dakila said.

Diokno has since been replaced by Felipe Medalla, who previously served as a member of the Monetary Board. — RSJ, GMA News