MANILA, Philippines - Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr said with the economy expanding beyond expectations last quarter, the potential growth rate of the country has gone up to six to seven percent.
First-quarter economic growth hit a three-year high of 7.8 percent, the fastest in Asia, the government reported last week.
Tetangco, who earlier said inflation will not rise as a result of faster-than-expected expansion, said the BSP will “assess all indicators†in their next policy meeting on June 13.
Based on the Aquino administration’s medium-term program, the economy is targeted to grow between six and seven percent, during which inflation will be kept at three to five percent.
As of March, inflation settled at the lower-end of that goal and Tetangco said the latest growth print just solidified that.
Usually, fast growth results into accelerated inflation due primarily to high demand for goods and services.
“There is reduced risk of inflation as the economy grows on a higher rate,†Tetangco explained.
“In our next meeting, we will assess the impact of these developments, including those in the liquidity front,†he added.
High liquidity-- though beneficial to growth-- may also edge inflation higher.
During its past policy meetings the BSP has been focused on fine-tuning its special deposit account (SDA) facility by trying to push out more funds into the system to support growth.
It slashed the interest it offers to SDA-- fixed-term deposits by banks and trust departments — to two percent from 3.5 percent.
Tetangco said the BSP will have “some idea†of where trillion-peso SDA funds will go, following the rate cuts and announcement of a ban on singular investment accounts starting 2014.
“A shift can happen in the SDA... We will take note of these shifts and movements in the financial system,†he explained.
Last Friday, the BSP reported money supply grew 13.2 percent in April, easily one of the fastest in more than three years.
As more funds flow out into the system, Tetangco assured the public these will be more beneficial than harmful.
“We have noticed increased investments, expanded absorptive capacity and improvements to employment in the growth numbers,†he said.
Nevertheless, “we will take note of the over-all picture during our next meeting,†he added.