IF the economy grew faster in the last quarter of 2023, the Monetary Board, the highest policymaking body of the Bangko Sentral ng Pilipinas (BSP), may consider hiking interest rates.
At the sidelines of the recent Annual Reception for the Banking Community, BSP Governor Eli M. Remolona Jr. told reporters fourth quarter GDP may have posted faster growth than the 5.9 percent recorded in the third quarter. He added that the second-quarter growth was an “aberration.”
In terms of inflation, Remolona said, the BSP expects inflation to slow in the first quarter of 2024 due to base effects. But commodity prices are expected to increase in the second quarter of the year. Given this, the central bank remains in a hawkish mode.
“I think it’s gonna be better than Q3 [third quarter] kasi yung Q2 (second quarter) medyo aberration yun in terms of growth,” Remolona said. “If the growth is strong, that gives us a bit more room to hike. [Yes] hike. [Since it’s a] strong growth, kaya ng economy tanggapin [the economy can absorb it].”
Remolona said, however, the BSP remains in a “neutral” zone when it comes to their estimates for growth and inflation. He said their measures are still “very imprecise.”
“We’re kinda in the zone where it’s kind of neutral. This is based on our estimates of what’s called the natural rate. Our estimates are very imprecise so, which means we could hike and it’s still okay but we’re not sure because it’s an imprecise [measure],” Remolona said.
Meanwhile, Socioeconomic Planning Secretary Arsenio M. Balisacan said he hoped fourth-quarter growth would be better than the previous quarters to attain the low end of the 6 to 7 percent target.
Initially, Balisacan said, the economy needs to post growth of 7.2 percent year-on-year for the fourth quarter of 2023 to attain the low end of the government’s target of 6 percent to 7 percent for 2023.
There is still a chance, he said, that the economy posts better growth despite the decline in the country exports and imports performance.
“It’s largely domestic, the high share of domestic component of GDP is what gives you the confidence. I think despite the high inflation, the domestic spending is quite robust,” Balisacan said.
“Of course, it could have been much better if inflation declined faster than what we’ve seen. But I think the fact that inflation is seen to continue to decrease should give confidence to our people,” he added.
In an open letter to the President, Remolona stressed the importance of non-monetary measures to address inflation this year. (See: https://businessmirror.com.ph/2024/01/26/bsp-chief-endorses-non-monetary-measures-against-inflation-to-pbbm/).
He said the BSP’s risk-adjusted forecasts indicated that inflation may settle above the target at 4.2 percent in 2024 before slowing to about 3.4 percent in 2025.
However, Remolona said risks remain skewed to the upside this year and next year. These upside risks include higher transport charges, increased electricity rates, and higher oil and domestic food prices.
“Of course that’s [non-monetary measures] been our effort all along. We have been focusing on the non-monetary side, because we do know that the supply side aspects of inflation pressure is what we need to attend to, especially in food,” Balisacan said.
However, when asked whether there are other non-monetary measures in the pipeline, Balisacan only stressed that they are closely monitoring inflation and hope the El Niño will not be “worse than what we expected during the last quarter of last year.”
So far, he added, “we aren’t seeing major effects but we are foreseeing the Q2 [second quarter] and the latter end of Q1 [first quarter] for the El Niño, so we are preparing for that.”
Earlier, Remolona said non-monetary measures include Executive Order No. 50, which extended the effectivity of reduced tariff rates on key agricultural commodities and could temper risks to food prices.
However, Remolona said this is not enough, and other supply-side measures are “equally important” to keep inflation at bay.
These strategies include those needed to mitigate the potential impact of El Niño in communities, as well as efforts to boost farm sector productivity.
The BSP expects an uptick in inflation in the second quarter before slowing to within the target band in the third and fourth quarters of 2024. First-quarter inflation is expected to be within target due to base effects.