The Philippine economy will pull through “very difficult challenges” such as high inflation and interest rates, Bangko Sentral ng Pilipinas Governor Felipe Medalla said over the weekend.
Medalla said among these challenges are the policy tightening in the United States that affected global financial markets and the continuing war between Russia and Ukraine that led to high global commodity prices.
“We are facing more challenges than ever on the economic front. In fact, I have said before that this may be the most difficult time since I joined the Monetary Board more than a decade ago,” Medalla said during the 31st Economic Journalists Association of the Philippines Business Journalism Awards on Friday night.
“We are facing very difficult challenges. There’s the very aggressive response of the US Fed. Then, we also have the Ukraine-Russia conflict, which along with domestic supply issues, pushed up the prices of oil and non-oil commodities,” he said.
Inflation in October accelerated to an almost 14-year high of 7.7 percent from 6.9 percent in September, driven by faster increases in the prices of food and non-alcoholic beverages.
The October inflation was the fastest since it hit 7.8 percent in December 2008 during the global financial crisis. This brought the average in the first 10 months to 5.4 percent, above the target range of 2 percent to 4 percent set by the government for 2022.
Medalla said while these challenges were indeed tough, “the Philippines will pull through”.
“We have done so in past crises and we will do it again,” he said.
Medalla said the BSP uses three tools to cushion the economy against disruptions. These are interest rate adjustment, a flexible exchange rate and foreign exchange market participation.
“We use a combination of these tools in a well-calibrated manner to keep the impact of external shocks manageable,” he said.
Medalla had said the BSP was preparing to increase the policy rate by another 75 basis points on Thursday to rein in inflation and support the value of the peso.
“The BSP’s policy rate hikes will also prevent a significant narrowing of the interest rate differential between the US and the Philippines. Keeping a comfortable differential between our policy rate and that of the US lends support to the peso,” he said.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said the financial markets had moderated their estimate for additional Fed rate hikes in view of easing US inflation data.