IMF urges BSP to keep rates steady unless upside risks materialize

By Anna Leah Gonzales

October 18, 2023, 3:41 pm

MANILA – The International Monetary Fund (IMF) said Wednesday the Bangko Sentral ng Pilipinas (BSP) should maintain policy rates for now but should raise rates if upside risks materialize.

In a briefing for the launch of the IMF's Regional Economic Outlook for Asia and Pacific, division chief of the IMF Asia and Pacific Department (APD) Shanaka Jayanath Peiris said the recommendation was included in the IMF's Article IV released a few weeks ago.

"On the monetary policy you know, what we mentioned in the Article IV a few weeks ago was that, you know, there's upside risks to inflation. I think the BSP recognizes it. What we said is that the current restrictive monetary stance should help bring down inflation by Q1 (first quarter) next year," Peiris said.

The BSP's Monetary Board has hiked policy rates by a total of 425 basis points since last year to temper the rising inflation.

For four consecutive meetings, the BSP kept policy rates unchanged but Governor Eli Remolona Jr. recently said a 25-basis-point rate hike is possible next month as inflation remains elevated.

"We didn't think it would come to within target this year, and there's upside risk. So, what we said is keep the pause on monetary policy tightening and you know, you should bring inflation down but if upside risks materialize, you may need to raise interest rates more, I think that's where the central bank is at the moment," Peiris said.

Headline inflation accelerated to 6.1 percent in September from 5.3 percent in August.

The government wants headline inflation to settle within the 2 percent to 4 percent range by the end of the year.

The BSP earlier disclosed that the major upside risks to the inflation outlook are the potential impact of further adjustments in transport fares and electricity rates.

The IMF, meanwhile, reiterated that the Philippine economic growth is expected to pick up next year despite the slowdown this year.

Economic growth for this year is projected to hit 5.3 percent and go up to 6 percent in 2024.

"This year's growth is a bit weaker for many factors including, you know, kind of initially underspending in the government and, of course, the impact of monetary tightening and the weaker external global environment, which is very similar to many ASEAN countries," Peiris said.

"For next year we are expecting a pickup because you know, service exports are doing quite well."

He said growth would be driven by infrastructure spending and foreign direct investments. (PNA)