Sluggish economic growth and stubborn inflation are expected to keep the Bangko Sentral ng Pilipinas (BSP) in a policy bind later in August, as fresh data are likely to show the economy remained soft in the second quarter while price pressures persisted.
Jonathan Ravelas, director of eManagement for Business and Marketing Services, said gross domestic product (GDP) growth likely remained subdued after expanding just 2.8 percent in the first quarter, with second-quarter growth potentially hovering near the 3 percent mark.
“The economy is likely improving, but perhaps not strongly enough yet to deliver the robust rebound many were hoping for,” he said.
While easing inflation in recent months and resilient household spending have offered some support, Ravelas said weak private investments, delayed government spending earlier this year and lingering global uncertainties continued to weigh on economic activity.
His outlook suggests the economy remains caught between recovering consumer demand and soft business investment, leaving policymakers with little room to stimulate growth without risking a resurgence in inflation.
Adding to the challenge, Ravelas expects July inflation to accelerate to around 6.8 percent from the previous month, driven by higher food prices, weather-related supply disruptions, elevated transport and logistics costs, and the lingering effects of the peso’s earlier weakness.
He also expects core inflation to edge higher, signaling that price pressures are becoming more broad-based as businesses continue passing on higher operating costs to consumers.
The combination of sticky inflation and subdued growth complicates the policy outlook for the BSP. While weaker economic activity would typically strengthen the case for monetary easing, Ravelas said persistent inflation leaves the central bank little choice but to keep policy
“An inflation print near 6.8 percent and a continuing rise in core inflation reinforce the need to keep monetary policy restrictive for longer to ensure inflation expectations remain anchored,” he said.
BSP projects July inflation within the 5.6 percent and 6.6 percent from 6.4 percent in June.
The Philippine Statistics Authority is set to release second-quarter GDP data on Aug. 7, while the BSP will hold its next monetary policy meeting on Aug. 27, with the two events expected to shape market expectations for the country’s economic trajectory and the timing of any future interest rate adjustments.
