ABS-CBN - The Philippine's economy does not need more stimulus for now as
domestic demand remained buoyant despite the global slowdown dampening
exports, but the central bank can ease policy if needed later this year,
its governor said on Wednesday.
Any adjustment to interest rates would depend whether the risk of
inflation acclerating or risk of economic growth falling was greater,
Governor Amando Tetangco told Reuters.
"Right now the balance of risks is broadly even," Tetangco said in an interview at his office in Manila.
The Philippines has shown resilience amid the global downturn that
has slowed growth in China and other emerging market economies in the
region.
Having posted one of the highest growth rates in Southeast Asia in
the second quarter, there was evidence that the Philippines could
sustain growth in the second half of 2012.
The Philippines' GDP expanded an average 6.1 percent in the first six
months, and policymakers are optimistic growth will hit the higher end
of a 5 to 6 percent target for this year, accelerating from last year's
3.9-percent expansion, despite weakening exports of electronics, the
main export earner.
"The policy stimulus currently in place is sufficient to provide
support to domestic economic activity amid the ongoing weaknesses
globally," Tetangco told Reuters in an interview at his office in
Manila.
"I'm not going to rule out possible further easing during the rest of
the year, but that will depend on our assessment...of the stance of
policy relative to the inflation target, which is our primary mandate,
and relative to economic growth," he said.
The Bangko Sentral ng Pilipinas, which next meets on Oct 25 to review
policy, has kept its overnight borrowing rate at a record low of 3.75
percent following three cuts totaling 75 basis points this year aimed at
shielding the economy against external shocks.
STATE SPENDING
Capacity utilisation in the manufacturing sector was above 80
percent, and energy sales, an indicator of economic activity, was on the
rise.
Accelerated government spending in the second half, and more
efficient spending brought about by budget reforms would help sustain
growth, Tetangco said.
"We expect to get more bang from each peso spent," he said.
Data released earlier on Wednesday showed government spending rose
10.4 percent in August from a year earlier, although it was down 22
percent from July.
Economists say there is scope to ease policy further to dampen rapid peso appreciation and curtail speculative inflows.
Having gained 5 percent against U.S. dollar so far this year, the
Philippine peso is the second best performing currency among emerging
Asian economies, only bettered by the Singapore dollar.
Sound macroeconomic fundamentals and the prospect of being rewarded
with an investment grade credit rating in coming months have drawn
investors, flush with cash thanks to easier monetary policies adopted in
developed economies.
While a strong currency offers protection against the inflationary
effects of higher prices of imports, it could also crimp growth as it
makes the country's exports more expensive and reduces the buying power
of foreign currency remittances from Filipinos working overseas.
Domestic consumption, which accounts for 70 percent of GDP, is driven by remittances, which average $1.7 billion a month.
Tetangco said higher oil and food prices in the world market were
upside risks to inflation, but these risks were moderated by the weak
global economic outlook.
While policymakers were closely watching asset prices particularly in
the property market, a bright spot in the economy driven largely by a
growing offshoring and outsourcing industry, there were no signs of
asset bubbles yet.
"We continue to believe there is limited evidence of stretched valuations in the real estate market," Tetangco said.
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