WEAKER-THAN-EXPECTED second-quarter economic growth has reduced pressure on the Bangko Sentral ng Pilipinas (BSP) to raise interest rates, its top official said on Monday.
Gross domestic product (GDP) growth slowed to 2.3 percent in April-July from 2.8 percent in the first quarter, dragged down by the war in the Middle East and the lingering effects of last year’s flood control project scandal.
The result came as inflation slowed to 6.2 percent in July, easing for a third straight month after hitting a three-year high of 7.2 percent in April and prompting the BSP to raise interest rates twice so far this year.
Inflation still remains well above the central bank’s 2.0- to 4.0-percent target, but the GDP slowdown — markedly lower than the government’s downwardly revised 3.5- to 4.5-percent goal for 2026 — has complicated the monetary policy outlook, as another rate hike could further dampen growth.
BSP Governor Eli Remolona Jr. told reporters that monetary authorities could still hike rates “as much as necessary to bring inflation down to target” but also said that “everything is on the table,” including a pause.
He acknowledged that the output gap was negative, indicating economic activity was running below potential.
“Growth is implied by the inflation mandate,” Remolona said. “If you can maintain price stability, that tends to sustain growth.”
“But in the short run, sometimes there are problems with growth. And then we take that into account. We don’t ignore that,” he added.
The BSP’s policymaking Monetary Board ordered 25-basis point hikes in April and June in response to surging inflation and the benchmark rate currently stands at 4.75 percent. The next policy meeting is scheduled for Aug. 27.
Remolona said the BSP was paying particular attention to core inflation, which strips out some volatile components and is viewed by the central bank as a better gauge of underlying price pressures.
“The focus is on the core, not the headline,” he said.
Headline inflation, Remolona explained, is affected by supply shocks while core inflation is more directly relevant to monetary policy.
“[T]he core is what we can control,” he said.
This measure cooled to 4.2 percent in April from 4.4 percent in June. It was, however, higher than the 2.3 percent seen a year earlier.
BSP Deputy Governor Zeno Ronald Abenoja echoed Remolona, saying “we’re looking at other measures of inflation” and adding that “core inflation may have plateaued.”
Year to date, headline inflation remains above target at 5.0 percent while core inflation is at 3.6 percent.
The BSP expects the inflation forecast to average 6.4 percent this year, ease to 4.5 percent in 2027, and then return to target in 2028.
