Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Thursday the Philippines has enough policy space to deal with external headwinds that may impact the expansion of the economy.
Diokno said in a presentation during the luncheon meeting of the Rotary Club of Manila at Manila Hotel that the economy was poised to further expand this year despite the domestic and global uncertainties.
“The Philippines has sufficient policy space, both monetary and fiscal, to deal with external shocks and their spillovers to the domestic economy,” Diokno said.
“Let us not forget that an appropriate mix of monetary, fiscal and other structural policies is crucial in achieving the government’s macroeconomic objectives,” he said.
He said the economic activity in 2020 would be supported by strong household consumption, robust agricultural sector activity, increased government spending following the timely approval of the 2020 national budget and higher capital spending for the “Build, Build, Build” program and private sector’s capital formation.
Economic growth is estimated to reach the low end of the target range of 6 percent to 6.5 percent in 2019 despite the delay in budget approval last year. With the recent signing of President Rodrigo Duterte of the P4.1 trillion outlay for 2020, economic managers believe that GDP growth would reach between 6.5 percent to 7.5 percent this year.
The Monetary Board, the policy-making body of the BSP, cut the policy interest rate by a total of 75 basis points and the reserve requirement ratio by a total of 400 bps.
Diokno said that in terms of the policy rate outlook for 2020, the BSP would always be data-dependent with its decisions. Julito G. Rada
“That is, each policy decision will be based on all the available information to monetary authorities at the time of its decision. For this reason, the BSP will continue to closely monitor economic conditions and on making reasonable assumptions about the future when formulating its monetary policy,” he said.
“While emphasis is given to inflation and inflation expectations, we also consider a wider set of economic variables and their dynamics in deciding on monetary policy,” he said.
Diokno said the resilient real GDP growth, declining poverty rate, effective monetary policy, low inflation, modest fiscal deficit, ample liquidity, strong and stable banking system, and a strong external position would shield the economy from the external and domestic shocks. These would be supported by comfortable foreign external reserves and prudent external debt management.
Data showed that the country’s gross international reserves as of end-December 2019 reached an all-time high of $88 billion and surpassed the $85 billion projected by the BSP. Diokno said the peso was broadly stable throughout 2019.