Growth seen to fall within gov’t range

MANILA, Philippines–The Bangko Sentral ng Pilipinas, the Philippine central bank, expects growth of the economy to range within the government’s revised forecast of between 5.7 and 6.5 percent, even after the regulator raised key interest rates to temper the sharp rise of consumer prices.

“I don’t think monetary action will [affect] economic growth,” BSP Deputy Governor Diwa Guinigundo told reporters on Friday. “Demand is broadly buoyant, therefore the economy can absorb measured tightening.”

The quarter-percentage monetary tightening announced last Thursday was meant to mop up excess liquidity. Too much cash in the system could push inflation over the 4.5-percent ceiling the government had set for next year.

The BSP has conceded that this year’s inflation target of 5 percent will be breached. The regulator sees consumer prices rising by 7 to 9 percent year-on-year this year, and by 4 to 6 percent next year.

Still, Guinigundo said, he remained upbeat that the domestic economy would perform “better than what we’re seeing today.”

The domestic economy expanded by only 5.2 percent in the first quarter, below market expectations.

“Overseas Filipino remittances will continue to support consumption expenditure,” Guinigundo said.

“BPOs [business process outsourcing] and mining will also continue to support the economy. I’m still bullish about the economy’s ability to outperform expectations.”

He added that the trade-off between growth and inflation would only be temporary and, over the long term, price stability would be supportive of economic expansion.

The BSP expects inflation to peak in the third quarter.

But while the recent wage increase in the country fell within the central bank’s expectations, Guinigundo said he hoped that further increases in the future would be moderate.

“We need to avoid triggering a wage spiral,” he said. “We should show some moderation in terms of wage demands and transport. We’re not saying don’t ask for wage increases, but there should be some moderation.”

On the part of the BSP, he said, policy-making would “ensure that inflation expectations don’t cause undue reaction in terms of the market’s pricing behavior.”

He added that the government’s additional spending on infrastructure, as well as other non-monetary measures, should boost farm output and, in turn, help stabilize food supply.

“DTI [Department of Trade and Industry] is implementing measures to ensure that there’s no hoarding, no predatory pricing in the markets,” Guinigundo said.

“We are in a very difficult time. But there are already good signs … the prospects now look better.”

On the domestic front, the La Niña phenomenon, which is said to spawn severe typhoons, already appears to be losing steam, he said.

“By the second half of 2008, we should be back to normal cycle,” he added.


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