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Philippines: Rate hikes to dampen growth until next year — S&P
MANILA, Philippines — The monetary tightening cycle of the Bangko Sentral ng Pilipinas (BSP) to check rising inflation may take its toll on the country’s economic growth until next year, according to S&P Global Ratings.
In a report, S&P said the BSP decision to raise interest rates by 175 basis points in five consecutive rate-setting meetings may dampen economic growth.
“To counter second-round impacts from supply-side inflation, the BSP has been forced to tighten monetary policy this year, potentially dampening the domestic demand growth outlook next year,” S&P said.
Furthermore, other factors affecting the Philippines’ economic growth include the global trade tensions that continue to threaten export demand and onshore confidence, it said.
Likewise, the Philippines’ current account shortfall may continue to make the economy more vulnerable to emerging market selloffs.
S&P expects the Philippine economy to grow by only 6.5 percent this year.
“We maintain our strong outlook for domestically driven medium-term growth in the Philippines, despite headwinds in the short term,” the debt watcher said.
The Philippines booked its slowest growth in three years, clocking in a GDP growth of 6.1 percent in the third quarter from 6.2 percent in the second quarter and 6.6 percent in the first quarter.
This brought the average growth to 6.3 percent in the first nine months, slightly lower than the revised 6.5 to 6.9 percent target set by the Development Budget Coordination Committee (DBCC).
“Consumption growth will likely stay low relative to recent history due to inflation, while the roll out of some non-crucial infrastructure projects will be slower as the government tries to rein in the current account deficit,” S&P said.
Inflation averaged 5.1 percent in the first 10 months after remaining steady at a near-decade high of 6.7 percent in October. The consumer price index is expected to exceed the BSP’s two to four percent target this year before easing back to the target range next year.
“Headline inflation remains elevated, but month-on-month readings appear to have peaked as global oil prices eased and the typhoon impact on food dissipated,” it said.
S&P sees inflation averaging 5.1 percent this year before easing to 3.8 percent next year and 3.5 percent in 2020.
The debt watcher said the liberalization of rice imports and the suspension of the January fuel tax hike would help ease inflation further but it would take some time for inflation to fall back to the BSP’s target range.
Source: https://www.philstar.com/business/2018/11/26/1871689/rate-hikes-dampen-growth-until-next-year-sp#USph7kUrOFkqQp7V.99