The economy continues to be robust to absorb the recent monetary policy rate increase by the Bangko Sentral ng Pilipinas (BSP), given the favorable expansion of economic activity early this year.
This was the assurance of Finance Secretary Benjamin Diokno, following the BSP Monetary Board’s decision to raise the interest rates in an off-cycle rate setting meeting.
The Cabinet-level Development Budget Coordination Committee (DBCC) recently lowered anew this year’s gross domestic product (GDP) growth forecast to a range of 6.5 to 7.5 percent instead of seven to eight percent to reflect recent domestic trend and challenges from external developments. It originally penned a GDP expansion of seven to nine percent this year.
This despite the faster-than-anticipated 8.3 percent GDP growth in the first quarter.
“The DBCC target range for the GDP growth rate has been set to be able to incorporate the various pace of monetary policy normalization by the BSP,” Diokno said.
The BSP has so far raised interest rates by 125 basis points, bringing the overnight reverse repurchase rate to 3.25 percent, including the back-to-back 25 basis points rate hike in May and June.
“Remember [that] the economy was growing at that rate before the pandemic, when policy rate was at 4 percent. We estimate that the economy will be back to where it was before the pandemic by [the] middle of this year, or by the third quarter of 2022 at the latest. The BSP simply accelerated the normalization process,” Diokno added.
The former BSP governor said national government will continue to adopt a gradual and calibrated path of fiscal consolidation to help sustain the strong growth momentum.
Diokno also said that the growth outlook is supported by the safe re-opening of the economy through loosened quarantine restrictions, as well as the positive impact of structural reforms, including the Corporate Recovery and Tax Incentives for Enterprises Act, the Financial Institutions Strategic Transfer Act, Rice Tariffication Act, and the amendments to the Foreign Investments Act, Retail Trade Liberalization Act, and Public Service Act.