THE ASEAN+3 Macroeconomic Research Office (AMRO) advised the Bangko Sentral ng Pilipinas (BSP) and the central banks of Korea and Singapore to maintain their tight monetary stance until inflation cools.
In its recently released ASEAN+3 Regional Economic Outlook (AREO 2023), the research arm said monetary policy should remain tight in economies in the region where inflation remains above target.
Inflation in the Philippines is still above 8 percent, significantly higher than the 2 to 4 percent medium-term inflation target. Core inflation also remains elevated and posted a 24-year high in March at 8 percent (full story here: https://businessmirror.com.ph/2023/04/06/prices-may-stay-high-despite-easing-inflation-in-march/).
“In the Philippines, the central bank raised its policy rate to curb rising inflation and the emergence of second-round effects. Given these three economies’ mid- and late-cycle positions, AMRO staff recommends that their central banks maintain a tight monetary policy stance until inflation pressures subside,” AMRO said in its report.
“The Philippines is assessed to be in mid-cycle with a widening positive output gap following continued growth on multiple fronts, including manufacturing and domestic tourism,” the report also stated.
A report from Bloomberg on Sunday quoted BSP Governor Felipe M. Medalla saying that the monetary authorities may pause the increase in interest rates when the Monetary Board meets in May.
The report stated “Medalla, in a mobile-phone message late Saturday, said [the BSP] could pause on rate hikes if April’s month-on-month inflation ‘is low, like February and March’.”
Bloomberg said April inflation data is scheduled for release May 5, while the next monetary board meeting is set for May 18.
However, AMRO expects inflation to average 5.9 percent this year before slowing to 3.8 percent next year. This, however, will still not prevent the country from posting a growth of 6.2 percent this year and 6.5 percent next year.
“High inflation and global economic slowdown weigh on growth prospects. High inflation caused by the Ukraine crisis and the influence of other supply factors could dampen domestic consumption. High food and oil prices in particular have impacted households’ ability to afford other discretionary items,” AMRO said.
AMRO also noted other risks to their outlook for the Philippines, which includes a slower-than-expected recovery in China, one of the country’s major trade partners.
Over the long-term, AMRO said, the Philippines should take strides to address the scarring effects of the pandemic which could affect the country’s productivity and growth potential.
The report added that the country faces social and economic costs of natural disasters that are increasing due to global climate change. This is crucial since the Philippines is among the most susceptible to natural disasters.
“These points raise the urgency for the Philippines to take action to build resilient, sustainable, and inclusive long-term growth,” the AMRO report said.
ADB outlook
Earlier, the Asian Development Bank (ADB) said high inflation, tight monetary policy and global headwinds are expected to slow the country’s economic performance this year and next year.
The Manila-based multilateral development bank forecasts GDP growth to slow to 6 percent this year before growing to 6.2 percent next year. The country’s growth last year was 7.6 percent while the government’s GDP growth target is 6 percent this year.
However, the country’s inflation rate this year is expected to outpace GDP growth. Inflation is forecast to average 6.2 percent in 2023 before slowing to 4 percent in 2024.
Based on the Asian Development Outlook, the Philippines, Singapore, Lao PDR, Timor Leste, and Myanmar will see inflation outpace GDP growth this year. Lao PDR and Myanmar, however, will see inflation outpace growth until next year.
Lao PDR is expected to see a growth of 4 percent this year and next year but its inflation will be in double-digit at 16 percent this year and 5 percent next year.
Myanmar is expected to post a growth of 2.8 percent this year and 3.2 percent next year, and to register an inflation of 10.5 percent in 2023 and 8.2 percent in 2024.
