Bangko Sentral Gov. Benjamin E. Diokno is optimistic of at least a six percent growth in the domestic economy in the second quarter of 2019, on the back of stronger public spending and more robust consumption.
In an interview after the launch of the New Generation Currency bearing his signature at the central bank Wednesday, the BSP chief explained that consumption slows when inflation goes up and this, he said, also impacts the manufacturing sector.
In the first quarter of the year, growth, as measured by gross domestic product, slowed to 5.6 percent from quarter-ago’s 6.3 percent.
Government economists traced this to the delay in the approval of the national budget, which hampered government's spending program.
Relatively, inflation sustained its deceleration down to last April after it peaked at 6.7 percent in September and October in 2018.
It rose to 3.2 percent last May from month-ago’s three percent level but monetary officials believe that this is a one-off situation.
Aside from government spending and consumption, Diokno said growth of investments is also robust, with various companies like Jollibee, McDonalds and 7-11 reporting expansion plans.
He also hopes for the recovery of the banking industry “because of what we’re doing”, referring to the impact of the total of 200 basis points cut in banks’ reserve requirement ratio (RRR).
BSP’s policy-making Monetary Board slashed universal and commercial banks’ (UKBs), thrift banks’ (TBs) and non-bank financial institutions with quasi-banking function (NBQBs) RRR by a total of 200 basis points on staggered basis effective May 31, 2019 (100 basis points), June 28, 2019 (50 basis points) and July 26, 2018 (50 basis points)
RRR on demand deposits and negotiable order of withdrawal accounts of rural and cooperative banks were, in turn, slashed by 100 basis points effective May 31, 2019.
Diokno said deciding on a big cut in banks’ RRR was a “smart move” on the part of the BSP since it allowed the banks to make the necessary adjustments ahead of the full implementation.
He said earlier fears that the cut would negatively impact on the economy and the local currency did not materialize.
“Looking back, I think it was really a smart move to pre-announce the reserve requirement (cut) so that the banking industry can prepare because there will be questions on what will happen next if we only announced a 100 basis points cut,” he said.
Asked if the cuts were able to address earlier concerns on tightness of domestic liquidity, Diokno said industry players have seen that “we are actually addressing their needs.”
Also, the BSP chief cited that the trend of bond issuances among private companies to raise funds for their expansion plans may be reduced now since they can now tap more funds from the banking sector following the RRR cuts.
He said the goal is to bring the RRR to single digit, from the current 16 percent, by the end of his term in 2024 since some countries in the ASEAN has a one percent RRR.