Tuesday, 26 May 2009

Easing inflation in Philippines seen to help fulfill growth goals

J Vallecera
Business Mirror

INFLATION, which averaged only 6.4 percent in the first four months, is seen averaging lower in the coming months, making it more likely for overall growth to average within forecast, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said on Monday.

He noted this dropped from 7.1 percent at the start of the year to only 4.8 percent in April.

Consequently, such demand indicators as loan and liquidity growth rates have pushed higher in recent months.

“What all these show is there is sustained economic activity,” Tetangco said.

Bank lending in March, for example, grew at a healthy pace of 18.9 percent in March, the bulk of which were so-called production loans or those that financed agriculture and forestry, real estate and the business services, the utilities and financial intermediaries, among others.

Domestic liquidity, essentially money made available to households and businesses, has also been up 15.6 percent in March to P2.11 trillion.

The amount of liquidity in the system is keenly calibrated to maximize local output or the gross domestic product seen ranging from 3.1 percent up to 4.1 percent this year.

Excesses in liquidity, given monetary policy adjustments and fiscal pump-priming totaling more or less P830 billion thus far, do not promote growth and are discouraged.

But thus far, Tetangco said the liquidity that entered the system has proven to be beneficial rather than counterproductive.

Nevertheless, the BSP is even now reviewing the forecast inflation numbers as it considers its monetary policy stance and its impact 15 to 21 months down the line.

“Prices are generally stable. But we are looking at the inflation forecast and at how the increase in liquidity is being used in the system, how it is used as loans to the different sectors,” Tetangco said.

Tetangco and six other members of the policymaking Monetary Board are expected to reduce the rates at which the BSP borrows from or lends to banks this Thursday by at least another 25 basis points.

Such a cut will reduce its borrowing and lending rates to 4.25 percent and 6.25 percent, respectively. J. Vallecera

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