An interest rate cut in the first half would be “too soon”, but is likely “within the year”, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona said over the weekend.
The BSP’s hawkish stance reflects its commitment to price stability, even as headline inflation rate dipped to 3.9 percent in December. Inflation averaged 6 percent in 2023, significantly above the target range of 2 percent to 4 percent.
Remolona told reporters at the sidelines of the annual reception for the banking community that while a “better” economic growth was expected in the fourth quarter of 2023, the BSP maintained a hawkish stance.
The policy-making Monetary Board kept the overnight borrowing rate unchanged at 6.50 percent and the overnight deposit and lending facilities at 6.0 percent and 7.0 percent in its final meeting in 2023.
A stronger economy, as measured by gross domestic product (GDP), could provide leeway for further rate adjustments, Remolona said.
“If the growth is strong, that gives us a bit room to hike,” he said.
The Philippine economy grew 5.9 percent in the third quarter of last year, faster than the 4.3-percent expansion in the second quarter.
National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan echoed Remolona’s statement of a strong GDP growth in the fourth quarter of 2023.
“[Q4 GDP] would be good. Despite the inflation, the domestic spending is quite robust of course. It could have been much better if the inflation has declined faster than what we’ve seen,” Balisacan said.
“Hopefully, our target is at least to hit the lower end range of the 6 to 7 percent,” he said.
The Philippine Statistics Authority (PSA) is set to announce the 2023 fourth-quarter performance of the Philippine economy on Jan. 31.
Balisacan expects a GDP growth of 6.5 percent to 7.5 percent in 2024 to generate economic opportunities, increase employment, raise per capita incomes and elevate the economy to “upper-middle-income-country” status by 2025.
“This growth will be supported by low and manageable inflation, a labor force with access to more and better jobs, a stronger fiscal position in the form of a lower deficit and debt as a share of gross domestic product, and an increasingly dynamic, innovative, and competitive economy,” he said.