MANILA: The deputy governor of the Central Bank of the Philippines, or Bangko Sentral ng Pilipinas (BSP), crackles with optimism when he talks about the country’s finances. Interviewed by Asia Times in his BSP office on the state of the economy and the prospects for next year, Guinigundo says that 2017 has been a “watershed year for the Philippines’ economy.” A graduate from the London School of Economics, the 39-year old is direct and to the point. A refreshing quality.
“We are not a popcorn economy,” Guinigundo says. “We have grown for 75 consecutive quarters even through the Great Recession of 2008.”
To underline the message, he points to low inflation and high growth. He also stresses that the Philippines is now a middle-income level country, although it is at the lower end of the spectrum.
The World Bank defines as middle-income a nation with a GDP of between US$1,026 to $12,615 per capita. “The Philippines is in a Goldilocks situation,” Guinigundo says. “We have low inflation at 3.2% and high growth at 6.9%. We can sustain high growth.”
Next year, he expects the economy to grow by 6.5% to 7% with inflation hovering around 3.4%. “The Philippine economy is running on all six cylinders,” he says, adding that he is not fazed by a potential further strengthening of the US dollar.
“Even if US interest rates go to 2% next year, they will remain below the Philippines policy rate of 3.0%,” he points out.
And, as importantly, pass-through inflation from a depreciating peso is low: “A 1% depreciation in the US dollar exchange rate at one point in time led to a 0.42% increase in inflation. Now, our models show that the impact has been reduced to just 0.16%. A lower peso does not add inordinate inflationary pressure.”
