MANILA, Philippines - Capital inflows are being put into good use by the local economy, the Bangko Sentral ng Pilipinas (BSP) said, standing firm on its position that the flow of credit remained at comfortable levels despite a recent surge on foreign inflows.
“We will continue to work with other agencies of government to improve the country’s absorptive capacity in order (to) utilize inflows more efficiently,” BSP Governor Amando Tetangco Jr. said in an e-mail yesterday.
Analysts have warned the Philippines is at risk of overheating -- a situation characterized by excessive flow of credit within an economy that pushes market prices up and results, among others, into the formation of asset bubbles.
The country has been a darling of foreign investors lately, resulting into record-high performances of the Philippine Stock Exchange (PSE) and the peso. The benchmark PSE index closed at a new record of 6,093.90 yesterday.
But Tetangco is confident the local economy, which grew by 6.5 percent as of the third quarter last year, is far from overheating with inflation well-managed at 3.2 percent last year. The inflation result was within the low-end of BSP’s three to five-percent target.
“(There is) no sign of overheating at the moment. Our latest runs show that domestic activity continues to keep pace with its long-run trend,” the BSP chief said.
Investments have been rising, he claimed, assisted by a continued flow of credit to the country and resulting into more business and employment opportunities, Tetangco said. These have kept pace with the country’s “relatively high” growth.
Economic expansion as of September was well-above the decade-average of 4.5 percent to five percent. It also exceeded the Aquino administration’s five- to six-percent growth goal last year. Official full-year growth data will be released next month.
“That said, we continue to monitor indicators including, among others, credit expansion, changes in external trade as growth in our major trading partners (like the US) gain traction and developments in the real estate sector,” the BSP chief said.
“We are ready to calibrate monetary policy settings as may be necessary to maintain non-inflationary growth,” he added.
He, however, reiterated that it will be “imprudent to go against the fundamental trend,” indicating that the large amount of inflows the country receives is supported by the economy’s sound macroeconomic fundamental.
The BSP, nevertheless, is keeping a keen eye on developments, Tetangco said.
“We are watchful of market conduct and will implement further macroprudential measures, including refinements to those we have already put in place to keep excessive volatility in market prices in check,” he pointed out.