THE Bank of the Philippine Islands (BPI) sees the country’s gross domestic product (GDP) for 2019 settling at around 6.5 percent, which can be further boosted if the Bangko Sentral ng Pilipinas (BSP) cuts its reserve requirement ratio (RRR) further.
During a news conference on Thursday at the Makati Shangri-La hotel, BPI Lead Economist Emilio S. Neri Jr. said the bank sees a growth of about 6.5 to 7 percent for the country’s GDP in 2019, which can be attained if the BSP makes cuts to the RRR by 2 percentage points more.
“GDP growth should be 6.5 to 7 percent, maybe a little bit more if BSP can cut its reserve requirement by more than 2 percentage points next year,” Neri said.
The BSP’s Monetary Board capped the RRR at 18 percent in May this year coming from 19 percent in February. Markets showed mixed reactions to the decision to bring down by another percentage point the deposit requirement of banks—or the portion of depositors’ balances that banks are asked to keep idle in the BSP’s vaults as reserves.
In July BSP Governor Nestor A. Espenilla Jr. said the recent cuts in the banks’ RRR are already enough to communicate their strategy for the banks’ funds in the long term, adding that, while cuts have already been enough for the year, there will be more to come next year to fulfill their goal of a single-digit RRR in the medium term.
In October the Development Budget Coordination Committee lowered the target range of the country’s GDP to 6.5 to 6.9 percent, from 7 to 8 percent for 2018. For 2019 to 2022, it retained its target of an economic expansion at a range of 7 to 8 percent.
Neri added that tempering inflation will also mean a recovery in household consumption which will help create a more favorable interest rate environment. The BPI sees average inflation to hit 3.6 percent in 2019, adding that it expects average inflation to hit 5.2 to 5.3 percent this year.
“If inflation can go back within target of the BSP, not only will it benefit recovery in household final consumption, the interest rate environment will become more favorable compared to how it is today… If we see a good correction of interest rates next year because of lower inflation, the spending side will continue to benefit,” he added.
The BSP forecasts average inflation rate for this year to hit 5.3 percent and 3.5 percent in 2019, and has set a target of 2 to 4 percent for inflation starting 2018.
“This year we are expecting 5.2 or 5.3 percent [average inflation], next year we are expecting a 3.6-percent estimate. So again, once it’s very clear that we are within target, the BSP will take the initiative to reduce the very aggressive 18-percent RRR. They have Basel 3 already in place with a very high adequacy compliance in the banks. Keeping the Basel requirement at 18 percent is repressive,” Neri said.