THE BANGKO SENTRAL ng Pilipinas’ (BSP) hawkish stance is expected to bring inflation to the target range by early next year, but further hikes could be needed if more upside risks to prices emerge, the International Monetary Fund (IMF) said on Wednesday.
However, BSP Governor Eli M. Remolona, Jr. told reporters on Wednesday that there is still a need to review the latest data before making a decision.
Asked if an off-cycle rate hike was still on the table, Mr. Remolona said: “We’re looking at the data, I think Tuesday we’ll gather and run through them all again and see what needs to be done. We’ll know next week.”
The Monetary Board has kept the benchmark interest rate at 6.25% since March after hiking borrowing costs by 425 basis points (bps) since May 2022 to tame inflation. Its next policy-setting meeting is on Nov. 16.
IMF Asia and Pacific Department Regional Studies Division Chief Shanaka Peiris said Philippine inflation is unlikely to ease to the BSP’s 2-4% target range within this year amid upside risks.
“The current restrictive monetary stance should help bring down inflation by the first quarter next year… What we said is keep the course on monetary policy tightening, and it should bring inflation down. But if upside risks materialize, (the BSP) may need to raise interest rates more,” he said in an online briefing on Wednesday.
The IMF expects Philippine inflation to accelerate to 6% this year before easing to 3.5% in 2024. The IMF’s forecast is slightly higher than the BSP’s 5.8% estimate for this year, but the same for next year.
Inflation quickened to 6.1% in September, the fastest in five months, due to rising prices of food and fuel. Year to date, inflation averaged 6.6%.
Mr. Remolona earlier this month said he is “not sure” if headline inflation will return to the 2-4% target range within the year due to the “significant spike” in September.
He has said that higher borrowing costs have not impacted the Philippine economic growth, which may indicate there is still room to resume monetary tightening.
The IMF expects Philippine gross domestic product (GDP) to grow by 5.3% this year, and by 6% next year. Both forecasts are below the government’s 6-7% goal for 2023 and the 6.5-8% target for 2024.
“For next year, we are expecting a pickup because you know, service exports are doing quite well,” Mr. Peiris said, adding that an acceleration in public spending and an increase in foreign direct investments will also drive growth.
In its Regional Economic Outlook Asia Pacific report, the IMF said central banks in the region should carry through with policies to ensure inflation is “durably at appropriate targets.”
“However, with challenges from headwinds to the outlook and limited policy space, continued fiscal and financial policy normalization is essential to support disinflation, preserve financial stability, and rebuild fiscal buffers. In addition, structural reforms to mitigate the negative impact from pandemic scarring, global climate change, and geoeconomic fragmentation are urgently needed,” the multilateral lender said.
The IMF said it projects inflation in Asia to ease towards central bank targets in 2024, ahead of the rest of the world where inflation is not seen to return to target at least until 2025.
“Risks to inflation from food (particularly rice) and fuel prices remain tilted to the upside; core inflation itself is susceptible to food, fuel, and shipping cost shocks, especially in emerging markets and developing economies. There is also considerable uncertainty around lags of policy transmissions and the relative size of supply and demand shocks,” it added.
The IMF expects the Asia-Pacific region to grow by 4.6% this year from 3.9% in 2022. Asia’s growth is expected to slow to 4.2% in 2024 and to 3.9% in the medium term, which it said was the lowest in the past two decades except for 2020.
“The Asia and Pacific region thus remains a relatively bright spot compared to 3% expected global growth this year… The slowdown in China’s property sector will weigh on demand throughout the region,” the multilateral lender said. — AMCS
