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PH economy strong enough to withstand the effects of BSP rate increases: Diokno

According to Finance Secretary Benjamin Diokno on Thursday, the Philippine economy is resilient enough to withstand future rises in the key rates set by the Bangko Sentral ng Pilipinas (BSP).

The BSP’s monetary policy normalization, according to Diokno, is one of the variables in determining the 6.5 percent to 7.5 percent GDP forecast for this year.

The continuation of relaxed quarantine regulations, as well as the favorable effects of structural reforms such as CREATE (Corporate Recover and Tax Incentives for Enterprises Law), FIST (Financial Institutions Strategic Transfer Act), PSA (Public Service Act), RTL (Rice Tariffication Law), and FIA (Foreign Investment Act), are seen as supporting the growth outlook, the official said.

In order to “help preserve the robust growth momentum,” Diokno continued, the national government would continue to pursue a steady and calibrated route of fiscal consolidation.

The domestic economy expanded by 8.3 percent in the first quarter of the year, exceeding the 7.8 percent growth in the previous quarter and reversing the first-quarter 2021 contraction of 3.8 percent.

The growth target for this year was recently reduced by economic managers from 7 percent to 8 percent after accounting for the effects of first-quarter developments on economic growth, such as the escalation of coronavirus sickness 2019. (Covid-19).

Nevertheless, they increased the growth estimate for 2023–2025 from 6% to 7% to 6.5–8%.

By the second or third quarter of this year, according to Diokno, he anticipates that the domestic economy will reach its pre-pandemic levels.

The normalization process was just sped up by the BSP, he claimed. “Before the epidemic, when the policy rate was at 4%, the economy was increasing at that rate.”

The domestic economy has been growing strongly as of the first quarter of the year, according to monetary officials, giving the central bank room to continue its cycle of tightening.

The off-cycle rate increase of 75 basis points, which BSP Governor Felipe Medalla announced earlier in the day, is the largest so far this year since the increases of 25 and 50 basis points in May.

The Monetary Board, which sets policy, decided at its regularly scheduled meeting on Thursday to confront rising pricing pressures and the ongoing key rate increases by other central banks, according to Medalla.

“By acting swiftly, the Monetary Board seeks to further anchor inflation expectations and contain growing inflation forecast concerns. Policies are being taken, in particular, to assist minimize spillover effects from other nations that can undermine inflation expectations, the official added.

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