Economist: More rate hikes to hurt economy

CEBU, Philippines — Further raising the policy interest rates may not be looking good for the economy in general, an economist warned.

Cebuano economics professor Fernando Fajardo pointed out that further hiking rates may further slowdown growth.

"Raising the interest rate further may only discourage investments that will also slow down the GDP (gross domestic product) growth," he told The FREEMAN.

The Bangko Sentral ng Pilipinas is releasing today its latest monetary policy decision as inflation steadied at 6.7% in October its highest rate in almost a decade.

The central bank has so far raised policy interest rates by 150 basis points since May amid the rising inflation.

Some economists earlier predicted the BSP to hike its policy rate by 25 basis points to 4.75 percent, while others expect it to pause after raising rates by a total 150 basis points since May.

The goal of these rate hikes is to fight inflation by reducing the amount of cash in the system which should lower demand and cut prices.

The central bank’s policy tightening could determine interest rates on consumer loans like a housing loan from banks. But market competition also dictates rates.

In general, banks use the BSP’s overnight borrowing rate as a benchmark to price their loans.

"The BSP may just have to stop raising the interest rate too in its next meeting (today) to stop inflation which already reached its peak last month," Fajardo said.

To boost economic activity, the economist urged the government to increase public spending.

"But government spending more than before would also mean more government deficits and inflation too," he said.

The Philippine economy grew 6.1% at its slowest annual pace in more than three years.