THE Bangko Sentral ng Pilipinas’s (BSP) decision to aggressively raise interest rates by a total of 100 basis points in a span of a few months will not dampen demand and pull down economic growth, the International Monetary Fund (IMF) said.
“We don’t see any significant impact of higher interest rates on near-term growth,” IMF Resident Representative to the Philippines Yongzheng Yang told the BusinessMirror in response to a query.
While concerns on the growth trajectory came after the BSP decided to raise its main policy rate for three consecutive meetings, the IMF expressed belief that monetary tightening will actually bode well for the local economy dynamics of the country.
“In fact, a tighter monetary policy may play a stabilizing role, particularly as it helps anchor inflation expectations and support confidence in consumption and private investment,” Yang said.
The BSP raised its main rate by a total of 100 basis points this year—first in May and in June by 25 basis points each and in August by 50 basis points—on the back of rising inflationary pressures in the country.
Inflation averaged 4.5 percent in the first seven months of the year, data showed.
For August the BSP forecast inflation to rise to 5.9 percent, from the previous month’s 5.7 percent, with a range of 5.5-6.2 percent.
“Higher price of rice and key food items due to weather disturbances and supply disruptions, increase in gasoline and LPG [liquefied petroleum gas] prices, and slight upward adjustment in electricity rates in Meralco-serviced areas contributed to upward price pressures in August,” the BSP said.
“Meanwhile, lower diesel and kerosene prices, as well as modestly appreciated peso, could partly temper price pressures this month,” it added.
The IMF resident representative said inflation’s exceeding the 2 to 4 percent target range of the government is likely transitory and will normalize next year.
“Barring any unforeseen developments, we expect average inflation to fall back to the 2 to 4 percent range in 2019, albeit likely at the upper half of the band,” Yang told the BusinessMirror.
Yang also reiterated their stand in their last press release in July, that, at this stage, the IMF supports the tightening moves from the BSP, as well as potential hikes, although the pace of tightening “should depend on evolving domestic and external conditions.”
BSP Governor Nestor A. Espenilla Jr. recently said they believe the economy has further space should they decide to tighten rates further and that the economy can absorb higher interest rates.
The country’s gross domestic product growth for the second quarter of the year slowed to 6 percent.
The BSP will have its next monetary policy meeting on September 27. This will be the sixth monetary policy meeting of the BSP for the year.