FASTER economic growth last quarter leaves more room for the central bank to maintain interest rates for now and, coupled with slow inflation, should quell fears that the economy is close to overheating, a senior official of the Bangko Sentral ng Pilipinas (BSP) said last weekend.

“Although the second quarter real GDP growth stood at the lower end of the growth target for the whole year 2017, it clearly promises to be very sustainable,” BSP Deputy Governor Diwa C. Guinigundo told reporters in a mobile phone message.

“From a monetary policy perspective, that gives us greater flexibility to take advantage of our existing monetary space. Such growth of 6.5% in the context of price stability is very much consistent with our potential output and that should convince us that overheating is quite distant at this point.”

The Philippine Statistics Authority reported last week that gross domestic product (GDP) expanded by 6.5% in the second quarter, picking up from the preceding three months’ 6.4% but slower than April-June 2016’s 7.1% climb.

Government spending accelerated to 7.1% from a near-flat 0.1% posted in the first quarter, while household spending picked up to 5.9% from 5.8% previously and continued to account for two-thirds of total expenditures in the economy.

Growth averaged at 6.45% last semester, a tad short of the lower end of the government’s 6.5-7.5% growth goal for 2017. Analysts have said that there is strong potential for fast GDP expansion this semester, but said much would depend on the government’s implementation of its ambitious infrastructure development plans.

Mr. Guinigundo said sustained robustness of economic activity — which fueled the eighth consecutive quarter of above-six percent expansion — lies behind the Philippines’ strong importation, as the entry of capital goods supports the continued expansion of local industries. More imports, he explained, “in time translate into higher productivity, higher exports and still higher investments.”

Imports grew by 18.7% in the second quarter, picking up slightly from an 18.6% climb from January-March but slower than the 25.4% surge seen a year ago.

Coming alongside outbound investments and prepayment of foreign debt, “[t]he transitory impact, of course, is some current account shortfall and peso depreciation,” Mr. Guinigundo added.

“What is, therefore, important is that this sustained growth path should allow us to take a longer view of economic and financial developments.”

The peso has been trading around its weakest value against the dollar in 11 years over the past few weeks, with traders attributing the local currency’s depreciation to external developments and market concerns about the current account deficit.

BSP officials, however, said an external trade gap should not be a cause of alarm as heavy importations will support the ambitious infrastructure projects planned by the Duterte administration over the next five years, which will stoke further growth. Mr. Guinigundo particularly said that the Philippines remains well-positioned to sustain its upbeat growth momentum, adding that inflation has remained subdued despite booming domestic activity. Prices of widely used goods and services averaged 3.1% in the seven months, a tad below the BSP’s 3.2% forecast for the entire year but still within the official 2-4% target band.

The Monetary Board kept interest rates unchanged during its Aug. 10 policy review amid signals that the economy does not need fresh stimulus given manageable inflation and firm domestic demand. — Melissa Luz T. Lopez

RELATED ARTICLESMORE FROM AUTHOR