THE tight monetary policy of the Bangko Sentral ng Pilipinas (BSP) is expected to adversely affect the economy’s performance in the third quarter, according to a United Kingdom-based think tank.
On Monday, Oxford Economics said based on its trackers, the country’s GDP growth may slow to a range of 4 to 5 percent in the third quarter of this year.
The think tank said the data from its trackers is near Oxford Economics’ own growth forecast of 4.3 percent in the third quarter.
“The Philippines and Indonesia are Asean’s two more domestically focused economies and the two where policy rates have been hiked well above the neutral rate. Our trackers suggest the impact on growth of tight policy continues to be more severe in the former than the latter,” Oxford Economics said.
While the Philippine economy’s growth on a quarter-on-quarter basis may represent a reversal from the contraction posted in the second quarter, the impact of high interest rates may extend beyond the third quarter, the think tank said.
“We think it will struggle to regain much more momentum, as the lagged impact of monetary tightening weighs further,” Oxford Economics said.
Moody’s Analytics
Meanwhile, Moody’s Analytics said the Philippines, Indonesia, and Japan all maintained interest rates last week but all of the monetary authorities in these countries have given an “uncertain outlook.”
Moody’s Analytics noted that the BSP maintained its 6.25-percent interest rate for the fourth consecutive meeting despite higher inflation in August.
The Philippine Statistics Authority (PSA) earlier reported that headline inflation averaged 5.3 percent.
However, Moody’s Analytics said this remained 3.4 percentage points below the 8.7 percent rate in January, a 14-year high.
“BSP said that moderating core inflation implied easing in underlying price pressures. It expects headline inflation will return to its target range of 2 percent to 4 percent in the fourth quarter of the year,” Moody’s Analytics said.
Last week, BSP Governor Eli M. Remolona Jr. said the central bank intends to raise interest rates anew in its next meeting and maintain this rate until the end of the first semester of next year.
The BSP’s Target Reverse Repurchase (RRP) Rate was maintained at 6.25 percent. Accordingly, the interest rates on the overnight deposit and lending facilities were retained at 5.75 percent and 6.75 percent, respectively.
Asked whether the BSP is considering hiking rates in November, Remolona said “Well, honestly, yes.”
The Monetary Board decided to maintain key policy rates for now but raised its inflation outlook for this year and next year. Only the inflation expectation for 2025 was kept at 3.4 percent.
Average inflation is now seen to reach 5.8 percent in 2023 from 5.6 percent previously, while the forecast for 2024 likewise rose to 3.5 percent from 3.3 percent.
BSP said the upward adjustments in the 2023 and 2024 projections reflect the spillovers from weather disturbances, rising global crude oil prices, and the recent depreciation of the peso.
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