Philippine economy now at a ‘sweet spot’ — BSP

The Philippine economy now sits at a “sweet spot” as inflation remains benign while the country’s banking sector and external position are strong, the Bangko Sentral ng Pilipinas (BSP) said.

“Amid the swirling controversies over corruption, I am pleased to report a piece of good news. We think the economy is in good shape,” BSP Governor Eli M. Remolona, Jr. said during a briefing at the Senate on Monday.

“Indeed, our economy is in what I would call a ‘sweet spot,’ and I think this would help our fiscal strategy (to) make it more effective,” he added.

For the first half, gross domestic product (GDP) growth averaged 5.4%, slower than the 6.2% a year ago.

Inflation averaged 1.7% in the January-July period, below the BSP’s 2-4% annual target.

Mr. Remolona said the central bank tamed inflation with its aggressive rate hikes.

Last week, it cut its key policy rate by 25 basis points (bps) to 5%. The central bank has so far lowered borrowing costs by a total of 150 bps since it began its easing cycle in August 2024.

“This lowering of the policy rate stimulates demand, it helps the economy grow, and because we did it in a very measured approach, it hasn’t led to inflation,” Mr. Remolona said.

He said inflation looks like it will stay within BSP’s 2-4% target range.

The BSP projected inflation to average 1.7% this year, before picking up to 3.3% in 2026 and 3.4% in 2027.

At the same time, Mr. Remolona also attributed the economy’s current state to the “sound” performance of the local banking system.

“The banks have solid balance sheets, assets are growing, deposits are growing, (and) income of banks is growing,” he said.

Mr. Remolona added that banks have maintained enough capital and liquidity.

“Looking at liquidity standards, international liquidity standards, our banks also hold liquidity that far exceeds the international standard,” he said. “At the same time, the loans are not so risky.”

Mr. Remolona also said digitalization and financial inclusion can help increase consumers’ savings, especially in a country where “savings rate tends to be quite low.”

Meanwhile, the BSP chief said the country has “more than enough” international reserves.

At end-July, the country’s gross international reserves slipped to $105.4 billion from $106 billion in June. — K.K.Chan