FELIPE MEDALLA
With the Philippine economy having grown slower during the second quarter, the Bangko Sentral ng Pilipinas (BSP) is seen to continue raising the policy rate in the remainder of this year but in smaller increments.
Ironically, rising interest rates—while intended to dampen inflation—would also cause a drag on economic growth.
Nicholas Mapa, senior Philippines economist at The Netherlands-based ING Bank, noted that before second-quarter data on gross domestic product (GDP) was released, BSP Governor Felipe Medalla hinted that the further rise of inflation last July raised the possibility of a 0.5-percentage point (ppt) hike instead of 0.25 ppt.
The Monetary Board is expected to increase again the BSP’s overnight borrowing rate at their meeting on Aug. 18, even after a large, off-cycle rate hike of 0.75 ppt that was announced last July 14.
“Despite the disappointing growth report, we still expect Bangko Sentral ng Pilipinas to maintain its hawkish bias for the rest of the year,” Mapa said.
The economist said financial market players were expecting an 8.4-percent GDP growth rate for the April-June quarter, faster than a revised 8.2 percent (initially reported at 8.3 percent).
“We believe however, that BSP may dial down the magnitude of tightening, resorting to 25-basis-point (or 0.25-ppt) rate increases for the remainder of the 2022 policy meetings,” Mapa said.
Considering the second quarter results and expectations of continually high inflation in the coming months, Mapa said the full year growth rate could settle at 6.5 percent, the lower end of the government’s target range of 6.5 percent to 7.5 percent.
Emilio Neri Jr., lead economist at the Bank of the Philippine Islands, said Philippine growth in the second quarter was the second fastest in Southeast Asia, but could have been “a lot faster” if inflation had not risen month after month from February to June.
Neri said real GDP in the second quarter of 2022 was only 0.1 percent stronger than in the same period of 2019, which implies that the sum of the last four quarters—second semester of 2021 plus first semester of 2022—of GDP is still smaller than the size of the domestic economy in 2019 or before the pandemic.