Still optimistic exports to grow 10% in 2012
MANILA (UPDATED) - The Philippines does not need further rate cuts to boost its economy in the face of global headwinds, but it should monitor more closely the impact of a stronger peso on exports, the economic planning chief said on Wednesday.
The peso has gained 4.6 percent so far this year to become emerging Asia's best performing currency. While it lowers imported inflation, a strong peso is bad news for exporters already hurting from slowing demand globally and families of overseas Filipino workers who rely on monthly remittances for their daily sustenance.
"I don't think there is need for more," Arsenio Balisacan, economic planning secretary, told reporters when asked if there was room to lower policy rates after a total of 50 basis points in cuts earlier this year.
"As of now, I don't see the need for any changes in the policy."
Higher government spending and exports that are still expected to grow 10 percent this year despite a global slowdown could help boost economic growth to hit the top end of Manila's 5-6 percent target this year, Balisacan said.
"The only thing they need to watch out for is the exchange rate, he said. "We need to ensure we are not eroding further the competitiveness of our exports, that would mean more serious unemployment problems."
Bangko Sentral ng Pilipinas Governor Amando Tetangco said the peso has been moving in step with other regional currencies.
"We keep our foreign exchange policy of allowing a market-determined exchange rate with scope for participation in the market to avoid sharp fluctuations," Tetangco told reporters separately. "What we don't want is speculation."
Exports, accounting for about two-thirds of GDP, climbed at its fastest pace in 17 months in May, but analysts expect shipments to weaken in the second half as economies of the country's main trading partners slow further.
Balisacan said he remains optimistic exports this year would grow 10 percent despite softer demand for the country's main electronics products. Exports in the first five months rose 8.4 percent from a year earlier.
He said earnings from other export items, such as agricultural products, could offset declines in electronics.
The industry group Semiconductors and Electronics Industries in the Philippines Inc cut its export growth forecast this year to 5-7 percent from 10-15 percent on slowing external demand, although the group is hoping for a second-half rebound in orders after current inventory cuts stabilise.
The economy may have sustained its growth momentum in the second quarter, from an annual pace of 6.4 percent in the March quarter, Balisacan said, but he could not give an estimate. President Benigno Aquino told Reuters last month second quarter growth may have surpassed the first quarter's pace.
"We haven't seen adverse shocks in the second quarter. I think we are close to that," Balisacan said, referring to the first quarter growth. Second quarter GDP data will be released in the last week of August.
The central bank said early this month there was room to ease monetary policy after inflation sustained its deceleration in June on softer oil prices. It will review policy on July 26.