The International Monetary Fund supports any move by the Bangko Sentral ng Pilipinas to further increase interest rates to bring back inflation within the target range of 2 percent to 4 percent.
This was contained in a statement after an IMF team led by Shanaka Jay Peiris held meetings in Manila from May 8 to 12 to discuss economic and financial developments and the outlook for the Philippine economy.
“Risks to inflation remain on the upside, and a continued tightening bias may be appropriate until inflation falls decisively within the 2 to 4 percent target range,” the IMF said.
Inflation hit a 14-year high of 8.7 percent in January 2023 after surpassing the target range last year. Inflation eased to 8.6 percent in February, 7.6 percent in March and 6.6 percent in April but remained elevated over the target range.
The BSP hiked the policy rate by a cumulative 425 basis points to 6.25 percent, more than the adjustments by other emerging market Asian central banks.
“After peaking in January 2023, headline inflation has gradually slowed in recent months, but core inflation has remained elevated, calling for tighter-for-longer rates,” the IMF said.
It said timely imports of cheaper food items and buffer stock releases as envisaged by the Inter-Agency Committee on Inflation and Market Outlook were expected to reduce still high food prices.
“The regional tripartite wage setting system has served the country well and should continue to link wage increases to productivity gains,” it said.
Elevated inflation that impacted consumption caused the economy to post a slower growth in the first quarter at 6.4 percent, compared to 7.1 percent in the fourth quarter and 8 percent a year ago.
The first-quarter growth was the slowest in seven quarters.
The IMF maintained its 2023 growth forecast for the Philippines at 6.0 percent, but said elevated inflation threatens the outlook going forward.
The GDP growth projection was below the actual 7.6-percent growth last year but within the government’s target range.
“The main downside risks to the outlook continue to be persistently high core inflation, depreciation pressures amid tighter global conditions, geo-economic fragmentation and balance sheet impacts related to higher borrowing costs,” the IMF said.