February 3, 2023

Pinoy Trekker

Pinoy Trekker – We go anywhere

GNP: rate hike improves chances of hitting growth targets

Bangko Sentral ng Pilipinas (BSP) OFFICIALS are confident that the latest interest rate hikes will improve the country’s medium-term growth prospects.

The central bank also said the country’s growth potential prompted Standard & Poor’s (S&P) Global Ratings to confirm its BBB+ investment-grade rating.

The Monetary Board’s recent decision to raise interest rates by 75 basis points raised the rate on BSP’s overnight repo facility to 5 percent from 4.25 percent.

“BSP is committed to its price stability mandate by working to promote predictable and low inflation rates,” BSP Governor Felipe M. Medalla said in a statement over the weekend.

“Well-managed inflation creates an environment conducive to strong and sustained economic growth and better living standards for all Filipinos,” Medalla said.

Central bank officials said persistently high inflation could have a negative impact on spending, confidence and hence growth.

S&P pointed out that the government’s fiscal position will gradually improve as the economic recovery takes hold. In her view, “the budget deficit should narrow further in the coming years as the economy regains traction and the government scales back stimulus measures.”

The international rating agency S&P has confirmed the Philippines’ long-term investment grade rating of “BBB+” and the short-term rating of “A-2” with a stable outlook.

The “stable” outlook, meanwhile, reflects S&P’s expectation that “the Philippine economy will maintain healthy growth rates and significantly improve its fiscal performance over the next 24 months.”

Additionally, S&P said the Philippines’ external position remains an anchor rating strength as “reserves continue to act as a strong external buffer.”

The country’s gross foreign exchange reserves increased from US$93 billion at the end of September 2022 to US$94 billion at the end of October 2022, providing a more than adequate external liquidity buffer equivalent to 7.5 months’ worth of goods imports and payments of services and primary income .

This exceeds the 3 months worth of imports suggested by the International Monetary Fund as a rule of thumb for reserve adequacy.

An investment-grade government rating indicates lower credit risk, allowing a country to access financing from development partners and international capital markets at a lower cost.

This allows a country to channel funds that would otherwise have been earmarked for interest payments into socially beneficial programs and projects for its people.