GDP growth seen to ease as rate hike bites

MANILA, Philippines — The Philippines may post a slower economic expansion this year after the series of rate increases adopted by the Bangko Sentral ng Pilipinas (BSP) last year to rein in inflationary pressures, according to a France-based investment bank.

Trinh Nguyen, senior economist of Natixis, said in its Asia Outlook 2019 the gross domestic product (GDP) growth of the Philippines may slow down to 6.2 percent this year from the projected 6.4 percent last year.

Nguyen said the projected GDP growth of Natixis is lower than the seven to eight percent target set by the Development Budget Coordination Committee (DBCC) for 2019.

She said consumption decelerated to 5.2 percent year-on-year in the third quarter as higher price pressures bite.

Inflation averaged 5.2 percent from January to November last year, exceeding the BSP’s two to four percent target, due to higher oil and food prices as well as the weak peso.

The consumer price index (CPI) eased to a four-month low of six percent in November from a near decade high of 6.7 percent in October due to lower oil and food prices. It is seen falling below six percent for the month of December.

“We also expect the tightening measures so far filter through to dampen domestic demand,” Nguyen said.

The BSP raised interest rates by 175 basis points for five straight rate-setting meetings since May last year to curb rising inflationary pressures brought about by supply shocks.

However, the central bank took a breather from its tightening episode last Dec. 13 keeping benchmark rates unchanged as it expects inflation to ease back to the BSP target earlier than expected this year.

According to Nguyen, the Philippines is likely to track the movement of the US Federal Reserve given its current account (CA) deficit position.

“The good news is that the hiking is close to over – expect only a 25 basis point hike to take rates to five percent,” she added.

Natixis sees inflation averaging 3.5 percent this year from the projected 5.1 percent in 2018.

“We expect to help ease inflationary pressures in the coming months. Moreover, the slowing down of oil prices should be supportive to dampen CPI. We expect inflation to ease in 2019,” Nguyen said.