WEAKER economic growth has given monetary authorities room to be less aggressive in taming inflation, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said, but “a more convincing downward trend” in consumer price increases is needed before policy can be relaxed.
“The weaker growth that we’re seeing means we can be less aggressive in trying to tame inflation. But in the face of an unpredictable opponent, oil prices, for example, we need to keep our eye on the ball,” Remolona said on Friday.
The economy grew by a lower-than-expected 2.3 percent in the second quarter, well below the government’s 3.5- to 4.5-percent target. While disappointing, Remolona said the result was “not that bad.”
Inflation, meanwhile, slowed for the third straight month to 6.2 percent in July but markedly higher than the BSP’s 4.0- to 5.0-percent goal.
“So, with the growth numbers and with inflation numbers, I think we need a more convincing downward trend for inflation before we can relax,” Remolona said.
Socioeconomic Planning Secretary Arsenio Balisacan said the growth slowdown should be viewed against the Philippine economy’s longer-term performance of 5.1 percent over the past 15 years, including the sharp contraction in 2020 and the post-pandemic expansion of 5.8 percent.
“The recent bumps, especially in the last three quarters, should be seen as temporary, and we don’t expect that to influence the long-term growth path,” he said.
However, Balisacan said that sustaining growth would require the Philippines to diversify its sources of expansion beyond household consumption, which has been supported by remittances and the information technology and business process management sector.
The government also needs to strengthen investment and exports on the demand side while reviving industry and agriculture on the supply side, he added.
Inflation remains a challenge, Balisacan continued, but the country has managed to bring price pressures under control in the past.
“We certainly have learned our lessons in navigating these bumps,” he said.
Remolona said inflation remained the more pressing concern amid global supply shocks caused by the war in the Middle East.
“The BSP cannot do very much about inflation arising directly from global supply shocks. What we can do is try to temper inflation that is found in the second round goods.”
Still, he said that expectations remained relatively well anchored, with a survey of analysts pegging the rate at 5.4 percent over the next 12 months, 4.0 percent over the next 24 months and 3.3 percent over the next three years.
While these remain above the BSP’s target, Remolona said the downward path was reassuring.
The central bank’s policymaking Monetary Board has so far raised key interest rates twice this year. Its next rate-setting meeting will be held on Aug. 27.
