The Bangko Sentral ng Pilipinas is expected to keep the key policy rates unchanged on Thursday despite the lower-than-expected economic growth of 4.3 percent in the second quarter, according to a British bank.
Hongkong & Shanghai Banking Corp. said in a report over the weekend while inflation continued to ease, risks remained that could put rate hikes back on the table.
It noted the rising rice export prices that increased 20 percent since the middle of July and reached their highest level since 2011.
“We think the BSP is comfortable with where monetary policy is now at 6.25 percent. Yes, the peso depreciated by 2.7 percent against the US dollar in a span of just 10 days, but at 56.3, the USD-PHP is still within the DBCC [Development Budget Coordinating Committee] assumption parameter of 54-57,” it said.
HSBC said to some extent, the growth cooling in the second quarter might also support macroeconomic stability and domestic balance. It said the national saving rate had not normalized to pre-pandemic levels, while investment continued to be robust.
“This imbalance may then require a tight monetary stance to help rein in demand, incentivize saving and bring the domestic economy back to balance,” it said.
“Despite the challenges in growth, we continue to expect the BSP to maintain the policy rate at 6.25 percent and only cut rates after the Fed cuts its own,” HSBC said.
It said since its baseline view is for the Fed to cut interest rate in the second quarter of 2024, “we expect the BSP to begin its easing cycle in 3Q 2024.”
The BSP is set to hold its next policy meeting on Aug. 17, 2023.
The gross domestic product grew 4.3 percent in the second quarter, slower than 7.5 percent a year ago, amid the uncertain global environment highlighted by elevated inflation and higher interest rates.
Finance Secretary Benjamin Diokno said despite the second-quarter numbers, the lower end of the growth target range of 6 percent to 7 percent for the year “remains achievable.” He said an aggressive catch-up plan would do the trick for the second half of the year.
“[The] 6.0 percent GDP growth target for 2023 remains achievable… An aggressive catch [up] plan for infrastructure projects [roads, bridges, airports, seaports, power, water, irrigation, telecommunications facilities, digitalization, school buildings, housing and others], quicker response by GOCCs [government-owned and -controlled corporations] and strong and deliberate spending by resource-surplus local governments are essential parts of the solution to the relatively weak second-quarter growth performance of the Philippine economy,” Diokno said.
He said one of the advantages of the Philippine economy was its less dependence on exports as some of its ASEAN neighbors and its growth for the past several years was mainly consumption based.
“That is why it is less susceptible to the weaker exports demand owing to the slowing global economy which is partly due to the aggressive monetary tightening, supply bottlenecks and rising commodity prices resulting from the ongoing Russian invasion of Ukraine,” Diokno said.