The central bank, Bangko Sentral ng Pilipinas (BSP), said Tuesday robust domestic demand would keep the economy buoyant despite fast-rising consumer prices, which gives it room to further raise benchmark interest rates.
BSP Governor Amando Tetangco Jr. said at a news briefing that he did not see domestic output sagging even if money supply growth had slowed down because of the recent increase in the central bank’s interest rates.
“If you look at sources of growth, it’s not too capital-intensive, so it’s really not that much affected directly by credit conditions,” Tetangco said.
An earlier report to the policymaking Monetary Board of the BSP said growth in the broadly defined money supply fell to about five percent in April, nearly half the expansion in March.
One of the key indicators closely watched by the BSP in managing inflation, domestic liquidity, or m3, refers to the total supply of money within the economy.
The BSP has not released the official figure on domestic liquidity growth. Tetangco said data were still being validated, given recent changes in the format for banks’ reporting of outstanding loans.
In the past two months, the BSP raised its overnight borrowing rate by a total of 0.75 percentage point to 5.75 percent in view of sharper-than-expected price shocks.
Monetary tightening normally takes more than a year to be fully felt, but Tetangco said monetary action would have immediate impact.
The governor said the economy could withstand its recent monetary tightening.
“If you look at demand conditions, they continue to be buoyant,” he told reporters. “If you look at historical trend in [overseas Filipinos’ cash] remittances, for instance, if inflows rise this quarter, the impact on consumption will be felt in the next quarter.”
He agreed that the overseas Filipino remittance engine was one of the factors giving the central bank room to navigate the difficult economic environment this year
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