Three growth boosters

PHILIPPINES - In Brief 25 Oct 2019 by Romeo Bernardo

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We are taking note of three announcements this week that are positive news for growth in the short to medium term.First, the one that has the most immediate economic growth impact, is government’s September fiscal report showing an impressive 40% jump in non-interest expenditures. This follows more moderate spending recoveries in the previous two months and may signal that government has finally regained spending momentum. Although spending details are not yet available, news reports cite a 70% increase in spending on infrastructure and capital outlays in September, raising hopes that public works will continue to pick up steam in 4Q19. Per the Finance Secretary, to fully catch up, government still has some P1.1 trillion, or 30% of this year’s budget, to disburse in 4Q19.Still at the macro policy level, the monetary authorities surprised financial markets anew yesterday by announcing another 100bp cut in banks’ reserve requirement ratio (RRR) effective December even as an earlier, similarly sized reduction has yet to come into effect (scheduled in November). The latest reduction brings the RRR for commercial banks to 14%, down from 18% at the start of the year, with every 1% reduction freeing up about P100-billion of liquidity. Monetary easing this year, including a cumulative 75bp cut in the policy rates, have contributed to bringing down domestic market interest rates by an average of over 250bp year-to-date across the curve and back to early 2018 levels. Based on the BSP Business Expectations Survey, “high interest rates” has been a growing concern since 2018. The hope now is that lower borrowing rates will help rekindle firms’ investment appetites for more producti...