MANILA, Philippines — The Philippine economy is likely to grow at a faster pace this year, but it would still be below the government’s goal of six to seven percent as rate hikes continue to constrict demand, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said.
At its policy press briefing yesterday, the BSP chief said the country’s gross domestic product (GDP) growth is seen accelerating to 5.9 percent this year after slowing to 5.5 percent in 2023 from 7.6 percent in 2022.
“We think growth could be about 5.9 percent thereabouts in 2024. We would have to be somewhat surprised by weaker growth numbers for us to cut (policy rates) sooner in the third quarter,” he said.
The economic managers, via the Cabinet-level Development Budget Coordination Committee (DBCC), earlier lowered this year’s GDP growth target to six to seven percent from 6.5 to 7.5 percent previously.
The Philippine Statistics Authority is set to announce the first quarter performance of the economy on May 9. A week after the release, the BSP will have its third policy review on May 16.
According to Remolona, a weaker GDP and a sustained downward trend in inflation may prompt the Monetary Board to reduce policy rates in the third quarter, but no more than 25 basis points.
“We’re a bit more hawkish than before, so I would say if we’re not going to do it by the third quarter, we may do it down the road. We’re contemplating easing, we’re not contemplating any further tightening,” he said.
Asked if how bad should developments be to prompt another rate hike from the BSP, Remolona said growth would have to be really strong and inflation really high.
“The previous rate increases continue to have an impact in terms of restraining demand. Our policy rates tend to have long lags in terms of transmission to the economy as well as to inflation,” he said.
“At the moment, we’re still facing tight monetary conditions. We’re relying on those effects to continue to affect demand as well as inflation,” he said.
The BSP kept the country’s benchmark interest rates steady for the fourth straight meeting on Monday, as monetary authorities continue to be vigilant against upside risks. It maintained its target reverse repurchase rate at 6.50 percent, as widely expected.
Interest rates on the overnight deposit and lending facilities are likewise untouched at six percent and seven percent, respectively.
Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco said he expects a total of 100 basis points worth of rate cuts before end-2024, with the first rate cut still possible in June if first-quarter growth weakens considerably.