BSP bullish on economic growth this year

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is optimistic about the country’s growth prospects this year, driven by lower inflation, strong domestic spending, lower borrowing costs and a resilient banking system.

BSP Governor Eli Remolona Jr. told The STAR that inflation has moved back within the government’s two to four percent target range and has been on a steady decline since it peaked at 8.7 percent in January 2023.

“With inflation back within target, the outlook for economic growth is quite positive. Lower inflation – combined with adequate liquidity and credit as well as improving labor market conditions – is expected to support domestic spending,” he said.

The Philippine economy expanded by 5.2 percent in the third quarter of 2024, slower than the previous quarter’s 6.4 percent growth. For the first three quarters, the country’s gross domestic product (GDP) averaged 5.8 percent.

Economic managers are targeting a six to 6.5 percent GDP growth in 2024 and six to eight percent expansion in 2025 up to 2028.

According to Remolona, inflation is expected to stay within the government’s two to four percent target over the medium term amid stable core inflation and anchored inflation expectations.

“These factors validate the BSP’s shift to a less restrictive monetary policy stance beginning in August 2024. We will continue to monitor the data and possible risks to the inflation outlook to help guide monetary policy moving forward,” he said.

The BSP’s Monetary Board lowered borrowing costs by a total of 75 basis points in 2024, bringing the key rate down to 5.75 percent from 6.5 percent at the start of the year.

Before the rate cuts, the BSP maintained its policy rate for six consecutive meetings since November 2023. From May 2022 to October 2023, the central bank had aggressively raised rates by a total of 450 basis points to rein in inflation.

“We expect that our data- driven monetary policy easing will continue to positively impact the economy throughout the coming year. This will be supported by a sound and stable banking system,” Remolona said.

The BSP’s monetary easing measures and projected rate cuts in 2025, as expected by market analysts, will reduce payment pressure on bank borrowers, he said.

Remolona said that the recent cut in banks’ reserve requirement ratios and the cumulative 75-basis-point rate cuts have already translated to lower rates for select loan types.

“This, coupled with banks’ strong credit risk management standards and sound corporate governance, is expected to result in the moderation in the growth of non-performing loans of banks and will provide further support to the optimistic NPL outlook of banks,” he said.

The NPL ratio of Philippine banks went up to 3.60 percent in October from 3.47 percent in September. It marked the highest in 29 months or since the 3.75 percent in May 2022. NPLs refer to credit obligations that have not been repaid for at least 90 days past their due date.

Meanwhile, the lower reserve requirement ratio (RRR) for big banks can be used to fund activities in support of economic growth.

“Moreover, the reduction in reserve requirements is likely to lower costs for banks. We expect that this will lead to better pricing of financial services and increased availability of credit for both households and businesses,” Remolona added.

In October last year, the BSP slashed the RRR of big banks as well as non-bank financial institutions with quasi-banking functions by 250 basis points to seven percent from 9.5 percent previously.