MANILA — An in-crease in the Bangko Sentral ng Pilipinas’ (BSP) key rates is needed if, indeed, signs of overheating in the domestic economy is present.
This was pointed out by IMF Resident Representative to the Philippines Yongzheng Yang, who raised the possibility of overheating if the sustained strong growth of loans continues.
“You need to, if there is indeed overheating, you need to tighten monetary policy, by raising interest rates. And if the over-heating is also reflected in very high credit growth, credit boom – meaning credit growth is excessive – you could also take various macroprudential policy,” he said.
These macroprudential measures include raising capital requirements for banks “so they won’t lend out that much,” he said.
BSP data shows that commercial banks’ outstanding loans, excluding placements in the central bank’s reverse repurchase (RRP) facility, expanded by 21.1 percent last September, higher than the 20.4 percent in the previous month.
Including RRP placements, bank lending rose by 20.1 percent, up from the 17.9 percent last August.
Yang said the IMF forecasts a 19 percent bank lending growth for the Philippines this year and 17.4 percent next year.
He explained that there is no ideal loan growth rate for any country at any time but said that if domestic loans continue to rise faster than projections then risks of overheating may occur.
“Right now, what we’re saying is baseline credit growth will moderate. There’ll be no overheating. If credit growth, as forecasts, keep going up then we have to look at whether there’s a possibility of (overheating),” he said.
Yang added that IMF economist discounts overheating in the Philippine economy thus, the lower growth projection for next year.
“We expect that the growth would start to converge to potential level. And with very strong growth over the last couple of years, there should be normalization because… on the technical part, on the bottom line is we don’t see the credit growth would continue on the uptrend. It will be normalizing,” he added. PNA