By Lee C. Chipongian
The International Monetary Fund expects domestic growth of 6.7 percent for this year and in 2019 on a generally favorable mid-term outlook but cautions against risks of rising inflation and uncertain global environment.
IMF Mission Head Luis E. Breuer, in concluding the latest Article IV assessment of the Philippines, said the 2019 growth is slightly lower than previously estimated but the adjustment only comes from the impact of external factors such as rising US interest rates and global trade tensions.
“Growth for next year is probably unchanged and the adjustment is minor – a margin of error – and reflects what’s happening outside of the Philippines (such as) higher interest rates in the US that is draining liquidity from other countries, including emerging markets, and the uncertainty associated with trade tensions,” said Breuer.
The current government’s strong consumption and investment, however, will ensure growth momentum of seven percent over the medium term, he added, but the government has to “strike the right balance between growth and macroeconomic stability” and adopted policies should be “adjusted to reduce inflationary pressures, while structural reforms should continue to support inclusive growth.”
The IMF official said they support the Bangko Sentral ng Pilipinas in its efforts to manage inflation and based on their assessment, inflation rate could have already peaked in June at 5.2 percent or July which will be announced on Aug. 7.
Breuer, however, called for the delay in the BSP’s move to reduce banks’ reserve requirement ratio from the current 18 percent, at least not cut the ratio further while inflation is moving up.
He said they understand what the BSP wants to do given that the country’s RRR is one of the highest in the region.
“The question is when to do it and by how much,” said Breuer. The BSP has slashed RRR twice this year by two percentage points.
