PHL economy facing risk of overheating — DB

The momentum from the fast-growing Philippine economy last year and the prevailing record low interest rates in the country are a potent mix for inflationary pressures to build up in a consumer-led market, an economist of Deutsche Bank (DB) said Thursday.

 

Amid a low-interest rate environment, the pressures coming from consumer spending are also being fueled by remittances from overseas Filipinos, Michael Spencer, DB chief economist for Asia Pacific told reporters in a briefing. 

 

“There is fundamental upward pressure on core inflation... The economy is at risk of overheating,” said Spencer.

 

“Monetary policy is far too loose. It will be healthy for interest rates to go up, but I don’t think the BSP is aggressive enough,” said Spencer.

 

Bangko Sentral policy rates are now at record lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending.

 

DB expects inflation accelerating to 4.6 percent this year and 5 percent in 2014.

 

The bank's expectations are in line with the Bangko Sentral projection range of 3 percent to 5 percent.

 

Philippine output grew by 7.1 percent in the third quarter of 2012, the second fastest in Asia after China, which placed growth in terms of gross domestic product in the first three quarters at 6.5 percent. 

 

DB projects a full-year growth of 6.3 percent for 2012.

 

For 2013, Spencer said the Philippine economy will likely settle at 5.5 percent. While slower than current estimates for 2012, the economist noted it is faster than the average growth range of 4 percent to 4.5 percent in previous years. — VS, GMA News