The Bangko Sentral ng Pilipinas (BSP) remains prepared to raise interest rates further if needed to bring inflation back to target, Governor Eli Remolona said, although weaker-than-expected economic growth has reduced the pressure for further tightening.
“The question is what you need to bring inflation back down,” Remolona told reporters on Monday when asked whether the economy could withstand more rate increases. He said the BSP was prepared to tighten policy “as much as necessary to bring inflation down to target.”
The comments come after the Philippines recorded its weakest growth among Southeast Asian economies that have reported April to June data. Gross domestic product growth slowed to 2.3% in the second quarter, adding to concerns that further rate increases could weigh on an already weakening economy.
Remolona acknowledged the growth challenge, saying: “In the short-run, there’s a problem on growth.” He also agreed that the disappointing economic performance has reduced the pressure on the central bank to tighten monetary policy.
The BSP has raised interest rates by 50 basis points this year and is due to hold its next policy meeting on Aug 27.
Inflation eased for a third consecutive month in July but remains above the BSP’s 3% target for the year. Deputy Governor Zeno Abenoja separately said core inflation, which excludes some food and energy items, may have already plateaued.
The economy has also been hit by higher inflation linked to the Iran war, which has hurt household consumption, while investment has weakened amid a graft scandal involving flood-related infrastructure.
Bloomberg
