The steady growth of the economy despite the central bank’s aggressive interest rate hikes since last year gives the monetary authorities elbow room to keep policy rates high in the meantime to further tame inflation, Bangko Sentral ng Pilipinas Gov. Eli Remolona Jr. said Thursday.
“As you can see, we have been tightening forcefully since May of 2022. And now we have tightened by 425 basis points. In the last two meetings, we have paused. We have not moved. We have reconsidered. We have reassessed,” Remolona said at the start of committee hearings at the House of Representatives reviewing the proposed 2024 budget. “The data is still mixed, so we are not sure whether to raise or even to cut. But for now we are at a pause and reassessing the situation. So, that is where we stand,” he said.
“The good news is even with aggressive tightening, it hasn’t really slowed down our growth,” said the newly-appointed central bank governor as he made his presentation to the House Committee on Appropriations. “As shown on the chart on the right, the growth was extremely strong in 2022 where the growth rate hit 7.6 percent. It has slowed down early this year but we think by the end of the year we will hit something like 6 percent,” Remolona said.
To sustain the economy’s relatively strong growth, Malacanang last week presented a P5.768 trillion national expenditure program for 2024. House Speaker Martin Romualdez pledged to pass the House version of next year’s outlay within five weeks to the Senate before September ends. The Committee on Appropriations, chaired by Rep. Elizaldy Co, has accepted Speaker Romualdez’s challenge for the appropriations panel to submit for plenary deliberations the budget proposal within four weeks.
Remolona said while average inflation has remained above the BSP target range of 2 percent and 4 percent in the first seven months at 6.8 percent, its latest simulations suggest the consumer price index will decelerate towards the target later this year and average 2.9 percent next year following a projected average of 5.4 percent this year.
“By the end of this year, inflation would have fallen towards our target range of 2 percent to 4 percent. In fact, it will overshoot a little bit (slow down to below 2 percent) in the early part of 2024 and then it will settle within the central bank’s target range,” he pointed out.
Finance Secretary Benjamin Diokno, a member of the BSP’s policymaking monetary board, said last week he expects the central bank overnight rates from the current 6.25 percent only early next year when inflation slides below the target range.
Remolona said the main risks to low inflation outlook are recent increases in wages and transport fares, persistent food supply constraints, toll rate increases, and the threat posed by El Nino on farm output.
The BSP’s Monetary Board will hold its policy meeting next Thursday, and expected to stay at a pause.
