amando m tetangco, jr : moving the economy forward to a higher growth path speech by mr amando m tetangco, jr, governor of the central bank of the philippines ( bangko sentral ng pilipinas ), at the annual reception fo rthe banking community, central bank of the philippines, manila, 15 january 2008. * * * honorable justices of the supreme court, honorable members of the philippine congress, members of the cabinet, leaders of the philippine banking sector, representatives of our partner organizations, fellow workers in government, special guests good evening. on behalf of the members of the monetary board, i welcome all of you to our traditional annual reception for the banking community. ladies and gentlemen. as you have noticed, while we hold this event for the banking community, we do invite representatives from other sectors. this is in recognition of the important role the banking industry and these sectors play in moving our economy forward. while we decide and act independently of each other, at the end of the day, our policies, programs, and activities are bound to affect the others. in other words, no one acts in a vacuum ; we are interrelated. it is in this spirit that we bring you together within the storied and historic walls of our fort san antonio abad. and now, let me give you a brief overview of how our economy performed in 2007, our common report card in other words and how our future is shaping up, 2008 in particular. i am pleased to report that 2007 was indeed a remarkable year for the philippine economy, as it showed its resilience and ability to sustain its growth momentum, in the face of severe volatilities in global financial markets and record world oil prices. our economy, as measured by gdp, turned in its best performance in 30 years by expanding at a faster - than - expected rate of 7. 1 percent in the first three quarters last year. there are indications that this strong performance was carried through the fourth quarter last year, based on preliminary reports on agricultural output as well as the services sector which includes telecommunications and tourism. noteworthy is the fact that we achieved in 2007 …. the ideal convergence of high economic growth with low inflation, which at 2. 8 % is our lowest in 20 years. in turn, low inflation kept interest rates on a downtrend, led by the bellwether 91 - day t - bill rate which averaged 3. 4 % in 2007, the lowest level

consumer spending should also be supported by an improvement in labour market conditions. these considerations underpin our confidence in a continuation of the economic recovery, an expectation which is mirrored by available forecasts and projections. it is also in line with financial market developments over the past few weeks. obviously, any forward - looking assessment is subject to risks and uncertainties. on the external side, the adverse terms - of - trade effects of recent rises in oil and other commodity prices pose risks at shorter horizons, while the persistence of global imbalances implies some uncertainties over the medium term. on the domestic side, uncertainties surrounding fiscal policy and structural reforms in some euro area countries seem to have contributed to preventing a more vigorous improvement in consumer confidence. a continued commitment to and greater clarity about the content and timing of these crucial reforms, supported by a better understanding of their necessity and benefits for all citizens, would help to resolve this uncertainty and thereby mitigate the associated risks for the euro area economy. turning to price developments, annual hicp inflation rates will exhibit some short - term volatility over the coming months, as we already indicated on the occasion of previous meetings of the governing council. according to eurostat ’ s flash estimate, annual hicp inflation was 2. 0 % in april, after 1. 7 % in march. while no detailed information is available as yet, the recent rise in annual inflation rates is likely to mainly reflect a strong base effect in the energy component resulting from the marked decline of oil prices a year ago. moreover, recent oil price increases have exerted additional upward pressure. as these factors will also play a role in the next few months, inflation rates of 2 % or somewhat above are possible over the short term. despite these recent, less positive developments, over longer horizons we expect inflation rates to remain in line with price stability. in particular, wage developments should remain moderate. the latest data on wage growth in the fourth quarter of 2003 lend support to this view. our outlook for price developments is in line with available forecasts and projections. however, at the current juncture, the increase in commodity prices in general, and oil prices in particular, may pose an upside risk to price stability. it will therefore remain important to pay close attention to inflation expectations. moving on to the monetary analysis, annual m3 growth has moderated only slowly since the summer of 2003. while there is evidence of continued portfolio shifts out of m3 into longer - term assets, the pace of this adjustment