amando m tetangco, jr : building on progress, bringing in changes speech by mr amando m tetangco, jr, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), at the development budget coordination committee briefing to the senate committee on finance on the fy 2017 proposed national government budget, manila, 30 august 2016. * * * senator loren legarda, chair of the senate committee on finance, committee members, members of the economic team, colleagues, ladies and gentlemen, good morning. as a resource institution of the dbcc, the bsp is pleased to provide this committee with an update on the emerging trends in the monetary, external and financial sectors of the economy, and to present the overall rationale behind the macroeconomic assumptions underlying the 2017 budget. let me highlight the key themes of the bsp ’ s presentation. first, the country ’ s macroeconomic fundamentals remain strong and its underlying story of resilience continues. the economy has sustained its growth above the historical average. inflation is expected to be within the government ’ s target in 2017, supported by favorable supply conditions and well - calibrated monetary policy. second, we acknowledge that the economy faces external risks from the weak world economic outlook, uncertainty and divergence in global monetary policy settings, and volatility in oil prices. in the domestic front, weather disturbances could exact a toll on both growth and prices. nonetheless, policymakers have sufficient space to address these risks. higher yet responsible fiscal spending targeted at further enhancing economic potentials could support sustained growth. timely implementation of supply - side measures would also help keep prices manageable. the country ’ s banking system remains healthy and fundamentally sound, serving to effectively intermediate funds to finance the needs of the various economic sectors. the bsp continues to guard against potential risks to price and financial stability, and remains prepared to implement further policy actions, as needed. finally, let me point out that the way forward calls for sustaining the economic gains by continuing to pursue reforms that will help boost the economy ’ s flexibility and productivity. for its part, the bsp will remain firm in its commitment to price and financial stability through forward looking monetary policy and purposeful reforms in the financial system, as we continue to build on our progress while we bring in the needed changes. i will end my brief presentation by sharing the legislative priorities of the bsp under the current administration. madam chair, this chart shows

next move would be. the comments of fed reserve chair janet yellen over the weekend, however, signalled that the fed could raise rates sooner rather than later, stating that the case for a rate hike has risen in recent months. market expectations are currently seen as too low. nonetheless, until that next move actually happens there could still be market volatility. • third is the significant drop in global oil prices due to abundant supply and weak demand in the international oil market. the decline in oil prices could affect our imports in a positive way but cash remittances in a negative way. • fourth is brexit. while some of the initial negative impact on financial markets has dissipated, there is still need to see what will transpire during the transition to full implementation of the exit. if recession holds sway in the uk, global economic prospects could be diminished. bis central bankers ’ speeches despite these external headwinds, madam chair, the economy has exhibited notable resilience. latest gdp outturn exceeded market expectations and those of other highperforming asian economies including china, indonesia, and malaysia. it bears noting that the drivers for our growth have been broadening. • on the production side, industry, supported by manufacturing and construction, has added more growth impulses. • on the expenditure side, higher public spending and private investments are additional growth drivers together with personal consumption. inflation remains benign. headline inflation averaged 1. 4 percent in january – july 2016, driven largely by supply side factors such as lower domestic rice and petroleum prices, downward adjustment in electricity rates, and the provisional rollback in jeepney fares. meanwhile, core inflation, which excludes certain volatile food and energy items, averaged 1. 7 percent in january – july 2016. inflation expectations continue to be broadly in line with the inflation target over the policy horizon. inflation forecasts by international financial institutions, particularly, the imf and institute of international finance also indicate benign inflation readings for both 2016 and 2017. on the country ’ s monetary conditions, ample domestic liquidity and the healthy growth in bank lending continue to support economic growth. domestic liquidity grew by 12. 4 percent in june 2016, reflecting robust domestic credits. bank loans, which increased by 17. 6 percent, continue to flow into the country ’ s productive sector. data as of june 2016 show that one - fifth of the total bank loans went largely to wholesale and retail trade ; motor repair ; transportation and storage ; and information and communication sectors