Higher govt spending won’t push interest rates higher — BSP’s Tetangco

Despite higher government spending, interest rates remain stable because of sound macro fundamentals and ample liquidity in the financial system, Bangko Sentral ng Pilipinas Gov. Amando Tetangco Jr. said Thursday.   “As to whether this is going to lead to interest rate increases, I don’t think so because there’s enough liquidity in the system and the macroeconomic fundamentals remain sound,” the central bank chief said in an interview with reporters.   Bangko Sentral data showed domestic liquidity — the total amount of money circulating in the financial system — grew 7.2 percent to P4.48 trillion as of end-January, from P4.179 trillion a year earlier.   “Inflation is also expected to remain within the target range for this year and next year… so increased government spending this year will most likely not lead to upward pressures on interest rates,” Tetangco noted.   Government has enough leeway to spend more this year after reigning in last year’s deficit spending, according to the central bank chief.   The Aquino administration managed to trim the budget deficit to P197.75 billion or 2 percent of gross domestic product (GDP) in 2011 from a record high of P314.46 billion or 3.5 percent of GDP in 2010.   Last year’s deficit was P102.25 billion lower than the programmed ceiling of P300 billion.   Last January’s deficit reached P15.94 billion, from a P13.42 billion surplus in a year earlier. Revenues fell by 7 percent to P126.35 billion from P135.9 billion, while spending jumped 16 percent to P142.3 billion from P122.49 billion. — VS, GMA News