Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Tuesday the country’s solid macroeconomic fundamentals will help pave the way for a much stronger economy in the post-COVID-19 era.
Diokno said in a virtual chat with clients of Japan-based financial services firm Nomura the Philippine economy already started the recovery process, as evidenced by the 11.8-percent growth in the second quarter.
He said the manageable inflation, stable banking sector and robust external payments position, among other fundamentals, would support the recovery and help keep the economic effects of the pandemic temporary.
“The Philippines’ economic fundamentals remain sound. While the pandemic poses challenges in the short term, the country continues to enjoy bright medium- and long-term growth prospects,” he said.
The Bangko Sentral estimated that inflation rate would slightly exceed the 2 percent to 4 percent target range this year because of supply factors, but this ease toward the midpoint of the target band next year and in 2023. Manageable inflation will continue to provide an enabling environment for investments and, therefore, job creation and income growth, Diokno said.
He said that in terms of banking sector stability, banks kept their capitalization and liquidity buffers above the regulatory requirements and their exposure to bad debts was manageable throughout the crisis. As such, banks will remain capable of supporting growth of the economy, he said.
Diokno said that on external accounts, the buffers were sufficient to manage the impact of shocks, including market reaction over pending move of the US Federal Reserve to normalize =monetary policy.
“Our external liquidity buffers continue to be more than adequate. Our hefty GIR [gross international reserves], steady inflows from remittances and BPOs [business process outsourcing] and recovery of exports and FDIs [foreign direct investments] will support the peso,” he said.
Preliminary data showed that the GIR reached $108.05 billion as of end-August this year, higher than the country’s outstanding external debt which amounted to $97 billion as of end-March.
Diokno said the peso, which depreciated by 3.5 percent against the US dollar since the start of the year, remained relatively stable, adding that the manageable weakening of the local currency against the US dollar was broadly in line with the behavior of other emerging market currencies, as demand for the dollar rose amid the anticipated policy normalization by the Fed.
Diokno said the flexible exchange rate policy helped protect the peso against speculative attacks. “The market determined exchange rate is our first line of defense against external shocks,” he said.
Latest government projections showed the economy would grow anywhere between 4 percent and 5 percent this year and accelerate to a range of 7 percent to 9 percent next year.