FIRST-QUARTER economic growth likely settled within target on a boost from state infrastructure spending, the Bangko Sentral ng Pilipinas (BSP) said, with robust activity capable of absorbing future interest rate hikes.
Monetary policy makers expect Philippine gross domestic product (GDP) to have sustained its momentum, saying growth likely settled close to or within the 7-8% goal set for the year by the administration of President Rodrigo R. Duterte.
The Philippine Statistics Authority (PSA) is scheduled to report first-quarter GDP growth on May 10, hours before the BSP’s Monetary Board conducts its third policy review for the year.
“The government’s commitment to sustain implementation of the programmed infrastructure spending could also provide a boost to domestic activity. GDP growth in Q1 2018 is projected to be consistent with the government’s target and remains within the estimated potential output for the past six years,” read the highlights of the Monetary Board’s March 22 policy meeting that were released on Thursday.
The policy-setting body opted to keep borrowing rates unchanged at 2.5-3.5% last month, unfazed by accelerating inflation despite mounting calls that the central bank is already behind the curve as far as interest rates are concerned. Policy makers had then cited robust domestic economic activity and little concern over faster inflation as reasons for keeping interest rates steady.
Economic managers have said that the 7-8% growth goal appears attainable over the medium term, with the government’s “Build, Build, Build” initiative likely to drive stronger activity in both the public and private sectors.
The state plans to pour P1.068 trillion on infrastructure projects this year alone, nearly double the P568.8 billion spent last year. Public spending surged to P469 billion as of end-February, up 26% from 2017’s first two months, according to Treasury data.
The Asian Development Bank expects Philippine GDP growth at 6.8% for 2018, while the World Bank and the International Monetary Fund have projected 6.7% expansion, keeping the Philippines among Asia’s fastest-growing major economies.
Despite the sanguine growth outlook, the BSP cautioned that inflation is likely to keep rising over the months ahead.
“[T]he Monetary Board noted that inflation expectations have started to rise and will therefore need to be monitored closely in the coming months,” the BSP said.
Price increases of widely used goods accelerated to 4.3% in March, led by a surge in the prices of cigarettes, alcohol products and rice, according to the PSA. This is the fastest price pickup in at least five years, bringing the three-month average to 3.8%, close to the ceiling of the BSP’s 2-4% target.
The Monetary Board said it was ready to “take immediate and appropriate measures” to carry out the central bank’s mandate of price and financial stability.
“It was also observed that economic growth remained solid enough to absorb some policy tightening if warranted,” it added.
BSP Governor Nestor A. Espenilla, Jr. has said that the BSP is prepared to raise interest rates should price increases turn more broad-based. Monetary authorities are particularly watching out for proposals to increase minimum wages and raise public transport fares as a result of the higher prices of goods due to the tax reform law that took effect in January. — Melissa Luz T. Lopez

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