targets have been revised. the government now projects gdp to grow by 5. 7 - 6. 6 percent while the forecast for inflation is at 9 - 11 percent. the bop surplus will reach us $ 2. 5 billion. exports are seen to grow by 5 percent while imports will expand by 10 percent due to higher prices of oil and food imports. what can you expect in terms of the bsp ’ s policy thrusts? the policy thrust of the bsp is aimed at ensuring that the headway that we have achieved in nurturing a resilient economy and a strong banking sector will continue. the bsp ’ s key monetary policy thrust will remain focused on promoting price stability. in its latest policy move, the bsp recognized the need for a more decisive monetary action to reduce the risks to inflation expectations and the long - term cost to output growth from prolonged high inflation. so our eye is on inflation because price stability is critical to sustained, durable economic growth. in the external sector, our policies will continue to be directed at maintaining a marketdetermined exchange rate with scope for occasional official action to address sharp volatilities in the exchange rate ; maintaining a comfortable level of reserves as selfinsurance ; and ensuring the sustainability of our external debt. in the financial sector, we remain firmly committed to institute key reforms that will lead to greater efficiency, effective risk management, stronger capital base and improved corporate governance standards in the banking system. given these reforms, we expect to see the continued expansion of bank resources and capital, as well as a further improvement in bank asset quality. we also envision a stronger and more resilient banking system as banks improve their ability to anticipate, price and manage risks. we will also continue to push for the passage of key legislations intended to develop a deep and efficient capital market as a complementary source of funds. this will make credit more accessible to a broader set of users and ensure a more efficient mobilization of resources. in summary, the bsp is prepared to take all necessary actions to address the threat of high inflation and promote price stability. we also continue to be mindful of the impact of any policy action on the economy ’ s growth momentum. the resiliency of our economy allows us to have greater flexibility in responding to the challenges that come our way. i am now ready to discuss the issues of particular interest to you. thank you.

3 percent in the same period last year, bringing the average inflation for the first six months of 2008 to 7. 6 percent. of late, we have started to see stronger signs of second - round effects, with core inflation rising and inflation expectations trending upwards. to prevent these inflation pressures from further feeding into the price - and wage - setting behavior of economic agents, we raised our policy rates by 25 basis points on 5 june and 50 basis points on 17 july. in both instances, the bsp ’ s baseline inflation forecasts showed more elevated inflation numbers for 2008 and 2009. sustained high inflation can unseat inflation expectations and potentially create a repeating cycle of lingering inflation and wage pressures that could prove costly to the economy. in response, we believe that the series of policy adjustments will help in steering inflation towards its desired path for the medium term. it is important to note that the challenges facing us are largely external in origin. a key issue therefore is the philippines ’ ability to weather these shocks. on the upside, the country was able to build up cushions that serve as sources of resilience for the economy against potential shocks. let me cite some of these buffers and how exactly these have insulated the economy from external risks. first, the philippine economy continued to grow notwithstanding the tougher operating environment. in the first quarter of 2008, gdp grew by 5. 2 percent, led by the strong performance of services on the production side, and by consumption spending, on the expenditure side. the strong growth of net factor income from abroad ( nfia ) pushed gnp to grow by 7. 3 percent. there is resilience here because growth is broad - based and notwithstanding the difficult times, the magnitude of growth is quite respectable. second, the banking sector has become stronger as a result of the reform measures that have been implemented over the past years. there is resilience here because our major financial intermediaries have remained strong enough to continue channeling savings into investment, and therefore supporting production and more sustainable employment. the philippine banking system ’ s asset base has grown steadily. the overall asset quality of banks continued to improve as well, with the npl ratio now moving closer to the pre - crisis level of around 4 percent. with healthier balance sheets, banks have been able to post a steady growth in lending. the banking system ’ s overall capital adequacy ratio remained strong, shored up by the increased issuance of hybrid financial instruments to bolster