The Aquino administration believes that negative external developments will not have long-term effect on the Philippines’ growth prospects as it remains committed to the seven to eight percent output target this year.
Finance Secretary Cesar Purisima on Friday said they will exhaust all means to lessen the impact of the on-going political uprising in the Middle East and North Africa, the Japan disaster and the rising cost of food and oil on domestic economy.
“Rest assured that the Aquino administration remains determined to push for the seven to eight percent growth goal this year and in the medium-term,” he said.
The Finance chief said among the proofs of the government’s effort to achieve this year’s growth target is the 25 basis points hike in central bank’s policy rates Thursday.
Bangko Sentral ng Pilipinas’ (BSP) policy-making Monetary Board (MB) decided to increase central bank’s policy rates to keep inflation expectations well-anchored.
Its overnight borrowing rate was raised to 4.25 percent from four percent while the overnight lending rate is now at 6.25 percent, both of which were maintained at record-low since since July 2009.
MB cited the continued rise in the inflation rate as the main reason for the rate hike, with BSP Governor Amando Tetangco Jr. projecting the rise in the country’s rate of price increases to peak either in the second or third quarter this year.
Purisima said “the government maintains that uncertainties enveloping other parts of the world will not necessarily have a significant and long-term effect on Philippine growth prospects.”
“We would like to assure the public that measures being undertaken by fiscal and monetary authorities – such as the pending review of macroeconomic assumptions by economic managers and Thursday’s raising of interest rates by the central bank – are all precautionary,” he said.
“Such is a proof of a functioning, responsive and active bureaucracy,” he added.
Earlier this week, Budget and Management Secretary Florencio Abad said the Development Budget Coordination Committee (DBCC), during their meeting Friday last week, maintained the economic targets set for this year but it continue to assess developments overseas.
Abad, who also heads the DBCC, said economic managers decided to maintain this year’s macro assumptions as it believs that external developments will not greatly affect this year’s economic targets.
“DBCC believes that resiliency of the country will continue to characterize the economy and absorb shocks from external shocks,” he said.
Abad also said growth, as measured of gross domestic product (GDP), is expected to reach the seven to eight percent target on account of among others the strong foreign investments inflows, solid external liquidity position and continued fiscal consolidation.
He pointed out that the domestic economy have good prospects on economic drivers namely the rebound in the agriculture sector and the resurgence of foreign direct investments.
“We continue to monitor developments and make sure that we have flexibility to absorb sufficiently whatever shocks that may result from developments abroad,” he added.
Meanwhile, the BSP sees the uptrend in the rate of price increases this year to peak either in the second or third quarter.
Tetangco Jr., in a separate announcement over the weekend, also forecasts inflation this month to stay within four to five percent as international prices of oil and domestic food prices continue to rise.
He noted that amid the strengthening of the local unit, which is expected to dampen the faster inflation rate in oil and food commodities, continued rise in the prices of oil and food products remain strong.
Last February inflation rate rose to 4.3 percent from the previous month’s 3.6 percent on account of price increase in oil and food commodities.
Tetangco said the decision of central bank’s policy-making Monetary Board (MB) to raise BSP’s policy rates Thursday to rein in inflation expectations “had already taken into consideration this expected uptrend in inflation in the near-term.”
“The move yesterday was preemptive so as to ensure inflation expectations remain anchored,” he said.
Central bank’s overnight borrowing rate is now at 4.25 percent while the overnight lending rate rose to 6.25 percent. Both of these were at record-low from July 2009 and were raised only yesterday after a 200-basis points cut starting in December 2008 to address possible impact of the recent global and economic downturn.
Monetary officials said that if not for Thursday’s rate hike, inflation this year could averaged at 5.18 percent, higher than the 4.4 percent they announced after the MB meeting last February.
The government’s inflation target for this until 2014 is a range between three to five percent.
“We forecast 2012 full-year inflation to be closer to the lower end of our target range,” Tetangco added citing as reason the 25 basis points increase in central bank’s policy rates. [PNA]
