Vital signs

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BSP Gov. Eli Remolona Jr. addressed the Tuesday Club, during its first meeting for the year. I am an original but now truant member of the Club. I might have attended if I had received earlier the questions Joey Salceda prepared to ask the governor.

But based on what Tony Lopez posted in our Viber group, I didn’t miss much. Gov. Eli proved to be an experienced acrobat in evading real answers to Joey’s questions. BSP governors, like the Federal Reserve Board chairman, always force journalists and analysts to read between the lines.

Mostly, Gov. Eli blamed loss of confidence across all sectors for our current problems, including the dismal economic growth in 2025. He suggested that other branches of our government, not the BSP, are responsible for the economy’s worrisome vital signs.

But not so fast… Joey Salceda has some questions and observations which suggest the BSP Governor may be too cautious and can do more. Publishing these questions now should elicit a discussion among policy makers at the BSP and guide the private sector in navigating our perilous economic environment.

Since I don’t have the space for all of Joey’s questions now, the rest will be in my next column.

Joey’s first question: “Governor, M3 grew at 7.6 percent year-on-year in Q3 2025, while nominal GDP grew at roughly 5.4 percent factoring in 1.4 percent inflation.

“Bank lending expanded 10.5 percent, yet gross capital formation contracted by 2.8 percent. Credit card receivables surged 29.5 percent.

“Is our monetary transmission mechanism channeling liquidity into consumption and asset speculation rather than productive capital formation? Are we financing a consumption boom rather than an investment boom?”

Joey offers his insights on those questions.

“Import composition confirms this: consumer goods imports remain robust while capital goods imports are softening. We’re borrowing to consume, not to build, the classic pattern preceding balance of payments stress.

“BSP should consider macro-prudential measures on consumer credit… The 29.5 percent surge in credit card receivables alongside contracting investment is a red flag.”

Joey’s second question: “Governor, we have a troubling anomaly: GDP grew four percent, yet employment fell by 1.6 million. The employment rate dropped from 95.3 percent to 94.7 percent.

“Historically, Okun’s Law suggests growth supports employment. Your report attributes this to weather disruptions, but agriculture only accounts for 18.5 percent of employment. Are we seeing early signs of structural shifts in labor intensity across sectors?”

Joey’s insights: “Worth examining whether IT-BPM is experiencing revenue growth decoupling from headcount growth. The BSP’s Q3 report notes ‘shifts in the IT-BPM landscape amid evolving client expectations and the rapid expansion of AI’. Not saying this is the cause, but BSP should be monitoring whether our services-led growth model is becoming less labor-intensive.

“If that’s the direction, implications for consumption and remittances are significant.”

Joey’s third question: “Public construction collapsed by 26.2 percent, yet private construction grew by 13.9 percent. This is reverse crowding out, where private capital fills the vacuum left by government withdrawal.

“But durable equipment investment grew only 0.6 percent, suggesting private firms aren’t scaling up productive capacity. Is private construction growth primarily residential real estate rather than industrial capacity?”

Joey’s insights: “I’m hearing from contractors that banks have tightened financing terms significantly; where they used to finance three-quarters to full contract value, now it’s half at most.

“So, the private construction growth we’re seeing may be equity-funded projects by well-capitalized developers, not broad-based investment. Construction surge appears concentrated in residential, not manufacturing or logistics.”

Joey’s fourth question: “Governor, inflation has averaged 1.7 percent for the first three quarters, significantly below the two to four percent target band. Rice prices are declining. Core inflation at 2.5 percent remains well-anchored.

“With unemployment rising and investment contracting, is there room for more aggressive easing? Could 50 basis points rather than 25 unlock growth without endangering price stability?”

Joey’s insights: “Real policy rate is now around 3.6 percent, restrictive by any historical Philippine standard.

“Monetary policy is the only countercyclical tool with ammunition right now. The peso depreciated anyway despite cautious easing, suggesting markets price growth concerns more than rate differentials. A bolder move might strengthen confidence rather than weaken it.”

In this regard, Gov. Remolona said the policy rate is already “very close to where we want it,” and that at most one more rate cut – possibly as early as February – could be considered, barring a sharper-than-expected growth slowdown.

But he signaled that growth below five percent will trigger more aggressive BSP easing. A deeper round of interest-rate cuts is a secondary defense if the country’s economic expansion fails to hold the five percent level, according to the governor.

While he sees current data supporting a “less dovish” posture, any deterioration in consumer demand or national output would force the central bank to expand its easing beyond the planned 25-bps cut.

So, that answers Joey’s question for now.

Joey’s fifth question: “The banking system looks pristine on paper: NPL ratio at 3.3 percent, CAR at 16.4 percent, loan growth at 10.5 percent. Yet the real economy shows GDP growth at four percent, investment contracting and employment falling.

“Is there a risk that our bank-centric financial stability metrics are masking stress in the broader economy? Consumer loan NPLs rose to 5.4 percent, and credit card NPLs hit 4.8 percent. Are we seeing early stages of household balance sheet stress that headline numbers don’t capture?”

Joey’s insights: “Underemployment rose from 12.1 percent to 14.8 percent, a critical leading indicator. These are people with jobs but insufficient income, likely using credit cards to smooth consumption. When underemployment rises and credit card debt rises simultaneously, that’s stress being papered over with debt, not prosperity. Headline bank metrics can look healthy right up until they don’t.”

There are three more questions for the next column.

Our economic vital signs are telling us more than what the optimism of the economic managers would make us believe.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco