, the main downside risks to inflation are the following : slower global economic growth due to protectionist policies in advanced economies ; geopolitical tensions in the middle east, along with potentially lower rice prices resulting from the proposed replacement of quantitative restrictions with tariffs and the deregulation of rice imports. at the same time, the bsp recognizes the potential price pressures of excessive volatility in the foreign exchange market and remains vigilant on the impact of sustained peso depreciation on inflation expectations. in sum, the bsp held the policy rate steady in the first quarter of 2018 amid the supply - driven inflation outturn. however, information beginning in the second quarter suggests incipient signs of second - round effects, given the potential broadening of price pressures, the continued dominance of upside risks to the inflation outlook, and the elevated inflation expectations over the policy horizon. these considerations prompted the bsp to raise the policy rate by 25 basis points ( bps ) in may 2018. to enhance our anti - inflation signal and help bring inflation toward a target - consistent path over the medium term, we followed this up with another 25 - bps hike in june, and a stronger 50 - bps hike earlier this month. these monetary responses were necessary to help rein in the public ’ s inflation expectations and prevent sustained supply - side pressures from giving rise to further second - round effects, even as we continue to expect average inflation to ease to within the inflation target of 2 – 4 percent in 2019. further, the hikes are meant to ease excessive market pressure on the peso and address the potential impact of excessive peso volatility on inflation. looking ahead, the bsp ’ s decisions on monetary policy will continue to be data - dependent and guided by our inflation forecasts. sustained domestic growth also suggests that the economy can accommodate monetary policy tightening. this growth is broad - based, thereby providing more opportunities across all segments of society. in the meantime, our external position is strong. gross international reserves of us $ 76. 9 billion as of july 2018 remain more than adequate, covering 7. 4 months of imports of goods and payments of services and income. our external debt metrics are also favorable as external debt to gdp ratio continues to decline. on the current account, the moderate deficit is driven by robust growth of the philippine economy 2 / 3 bis central bankers'speeches which requires higher imports of capital goods. our imports are mostly capital goods, raw materials, and intermediate products

labour and product markets. structural reforms in various regions of the world let me now turn to the issue of future challenges with respect to microeconomic policies and structural reforms in particular economic areas. i shall start with structural reforms in the euro area, and then move on to say a few words about structural reform in the eu neighbouring regions, the united states, latin america and, finally, east asia. euro area economic activity in the euro area remained subdued in the first half of 2003. however, there is increasing reason to expect that it will recover gradually in the second half of 2003 and strengthen further in 2004. although the outlook for price stability is favourable, having allowed interest rates to fall to historically low levels, monetary policy cannot by itself generate lasting and sustainable growth and employment in the euro area. part of the weakness in economic growth in the euro area may be linked to a lack of ambition in recent years in both fiscal and structural reforms to improve the conditions for investment and employment in the euro area. the euro area needs structural reforms which increase the flexibility of labour, financial and product markets and effectively increase potential output growth, job creation and investment. although the extent and implementation of labour market reforms have been uneven across countries, the efforts made in the 1990s resulted in positive progress in two areas : first, in fostering employment growth across most sectors, which rose to 1. 5 % per year on average between 1997 and 2001, and second, in helping groups, such as women, the young and old and the least educated, to enter the labour market. labour market reforms should now focus on reducing high structural unemployment and increasing participation and employment rates. indeed, it is important that, alongside social considerations, the countries of the euro area give more weight to economic efficiency within labour markets. capital market reforms can also play a major role in making the euro area economy more flexible. much has been achieved, not least due to the introduction of the euro, and the bulk of the financial services action plan has been implemented. however, the further integration of national capital markets towards a truly european financial market would be an important step towards safeguarding markets against country - specific shocks. finally, greater efforts must be made to remove existing barriers in product markets. since the early 1990s state enterprises have undergone extensive privatisation, the use of state aid has fallen and market entry barriers have been lowered, although not evenly across all countries or sectors. in addition, there are still significant barriers to the further removal of price pressures, and