Philippine economy seen withstanding BSP’s rate hikes

MANILA, Philippines — A regional surveillance organization downplayed the impact of the Bangko Sentral ng Pilipinas’ rate hikes on economic recovery, arguing that there are signs that the economy could sustain its growth path.

At a press conference on Tuesday, experts at ASEAN+3 Macroeconomic Research Office (AMRO) hiked their growth forecast for the domestic economy to 6.9% growth this year from a previous 6.5%. AMRO’s projection, however, fell shy of the national government’s projection of 7-8% growth this year.

“We don’t think rate hikes to have a significant impact on growth this year and next year,” said Dr. Hoe Ee Khor, AMRO’s chief economist.

“Growth won’t be affected, since growth is still self-sustaining, they [BSP] need to make hikes to make more headroom,” Khor added.

Despite calls for a more aggressive action against inflation, the BSP took on dovish posturing when it hiked interest rates by 25 basis points in its last Monetary Board meeting in June. So far this year, policy rates have been tweaked twice as the central bank began its normalization of monetary policy after two years of keeping rates at a historic low of 2% to support a pandemic-battered economy.

Even then, the next months could prove challenging for the country as low base effects that have been magnifying growth figures in the past quarters are set to dissipate the third quarter.

Meanwhile, inflation, driven by expensive fuel prices and supply-side concerns, and a weakening peso will be hurdles in the way of robust economic growth. For inflation, AMRO revised its projection to average 4.4% this year from the previous forecast of 3.8%.

AMRO expects the ASEAN region to eke out an average of 5.1% of GDP this year, partly as mobility has recovered to 2019 levels even as global headwinds such as the Russia-Ukraine war persist.

“This is the year of recovery for ASEAN region as a whole, provided there is no major downturn in the West, they’ll be able to achieve that,” Khor said.