The 3 July 1993. A lot can happen in

The Bangko Sentral
ng Pilipinas, much like Malaya, will be celebrating a hallmark anniversary this
year – its 25th year – from its inception on 3 July 1993. A lot can
happen in a score and 5 years’ time, one event was the United States (US) financial
crisis which stemmed from its sub-prime mortgage crisis in 2007 further
unfolding to a global economic slowdown.


Amid these
challenges, the BSP has remained steadfast in its commitment of price and
financial stability and the operation of an efficient and reliable payments
system consistent with sustaining the Philippines’ solid macroeconomic track
record while keeping ample policy space to help achieve growth objectives of
the country.

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Looking Back: The Economic and Financial Landscape in


In 2017, global
economic growth gained traction brought on by notable rebounds in trade,
investment, and industrial production, and further supported by improved
business and consumer confidence. The uptick in economic growth prompted major
central banks, especially in advanced economies, to gradually shift from
accommodative to more neutral monetary policy stance. For instance, buoyed by
strong labor market conditions and increased domestic spending, the US Federal
Reserve raised its target federal funds rate by 25 basis points to 1.5 percent last
December 2017.


However, the
recovery in advanced economies also took to front the prospect of higher
interest rates overseas, resulting in capital outflows from emerging markets as
investors searched for yields. In particular, the Philippines registered net
outflows in portfolio investments as well as depreciation of the peso and
deficit in the balance of payments account.


All the same, the
Philippine economy continued to be underpinned by resilient fundamentals with a
growth narrative that remained a source of optimism. The Philippine economy has
experienced sustained and uninterrupted expansion for the past 75 quarters,
with the first three quarters of 2017 registering growth of 6.7 percent, within
the government’s target of 6.5 – 7.5 percent for the year. This expansion was
backed by growth in production, domestic demand, and increased exports.


Moreover, inflation remained
low and stable for 2017. Headline inflation rose to 3.2 percent in 2017 (from
1.8 percent in 2016) due largely to rising international crude oil prices but
remained well-within the official target range of 2.0 – 4.0 percent. The latest
forecast show that inflation is expected to settle toward the mid-point of the
target range for 2018 and 2019. At present, the BSP deems its policy stance of
low interest rates appropriate.  


Furthermore, the
Philippines’ sound and healthy financial system continued to promote economic activity.
Trend in bank lending for the year remained affirmative of economic expansion
as loans continued to flow to key production sectors such as wholesale and
retail trade, manufacturing, and real estate activities. Even with the
increased lending activity, banks’ portfolio continued to improve with the non-performing
loans (NPL) ratio of universal and commercial banks significantly declining to
less than 2.0 percent in the past three years and registering at 1.4 percent as
of November 2017. Banks’ capital adequacy ratio (CAR) of 16.0 percent as of
June 2017 remained well-above the Bank for International Settlements’
international standard of 8 percent as well as the BSP’s more stringent
requirement of 10 percent. Likewise, growth in domestic liquidity conditions
was supportive of the requirements of our economy. Preliminary data showed that
domestic liquidity (M3) continue to post double-digit growth at 14.0 percent in
November 2017. For its part, the BSP continued to build on its liquidity and
risk management regulations to ward off potential threats to financial


Meanwhile, the
Philippines’ balance of payments registered a deficit for the first three
quarters of 2017 compared to the same period in 2016. This was mainly due to
the reversal of foreign portfolio investment flows which more than offset the
increase in net inflows of foreign direct investments. At the same time, the recovery
in the exports sector, continued strong inflows from overseas Filipinos’
remittances, business process outsourcing receipts, and revenues from the
tourism sector bode well for the country’s current account.