More interest rate hikes and reduced government spending may be looming on the horizon after the International Monetary Fund (IMF) nudged the Philippines to further tighten monetary policy amid persistent inflationary pressures.
The multilateral financial agency made the policy recommendation to the government in a bulletin released on Tuesday, following the conclusion of its periodic consultation with local officials.
“The BSP’s (Bangko Sentral ng Pilipinas) prompt action to fight inflation is welcome, but further monetary tightening may be needed to keep inflation expectations well anchored,” the IMF said, adding that the central bank should aim to temper inflation to within the official target range.
“Should inflation pressures continue to rise, the BSP should respond with a tighter policy stance,” it added.
The international lender is projecting that the country’s inflation will average 5.3 percent for the whole of 2022, lower than the latest BSP projection range of 5.6 percent to 5.7 percent.
For 2023, the IMF sees inflation easing to 4.3 percent—similar to BSP’s latest forecast—and to 3.1 percent in 2024.
Almost two weeks ago, the BSP hiked its policy rate by 0.75 percentage point, raising it to 5 percent effective as of Nov. 18, in an effort to quell inflation.
The Philippines’ consumer price index climbed 7.7 percent back in October year-on-year, the fastest rise since December 2008, driven by price gains in key commodity groups, specifically food and non-alcoholic beverages.
The government remains uncertain if inflation has already reached its peak this year, with the BSP saying that November inflation could come in the 7.4 percent to 8.2 percent range.
The Philippines’ largest business organization, the Philippine Chamber of Commerce and Industry, had earlier expressed hopes that the latest rate hike would be the final one this year.
Consumer rights groups Alliance of Concerned Consumers in the Philippines and the Rights Action Philippines have earlier expressed wariness about rate hikes, concerned about how it affects loan and credit card rates and the public’s access to these financial instruments used as relief for today’s rising cost of living.
The Monetary Board, the central bank’s seven-person policy making body, is set to meet one more time before the end of the year.
The IMF said that projection sees the Philippines’ gross domestic product (GDP) growth, a measure of the size and health of the economy, slowing down to 6.5 percent in 2022. This is the lower limit of the government’s 6.5 percent to 7.5 percent target for the year.
“The outlook for 2023 is more challenging due to unsettled conditions in major advanced economies,” said the IMF.
For 2023, the IMF expects Philippine GDP growth to slow further to 5 percent, lower than the government’s projection of a 6.5 percent to 8 percent growth for the year.