Interest rates remain elevated experts predict economic growth decline

An economist from Pantheon Macroeconomics, Miguel Chanco, has warned that the Philippine economy might face a downturn this year due to the full impact of monetary policy tightening. He predicts that gross domestic product (GDP) growth could decelerate to 4.8 percent in 2024, a drop from last year’s 5.6 percent and marking the lowest full-year result since 2011.

Chanco emphasized the limited capacity of fiscal policy to offer substantial support, as the consolidation of budget deficits incurred during the pandemic is still ongoing.

Highlighting the interplay between interest rates and inflation, Chanco pointed out that if key interest rates remain elevated, the decline in inflation could effectively translate into an increase in the benchmark rate in real terms.

The Bangko Sentral ng Pilipinas’ (BSP) Monetary Board, which maintained its stance during its recent meeting, acknowledged remaining risks of inflation, albeit diminished, which still lean towards the upside.

Currently at a 16-year high of 6.5 percent, the BSP’s benchmark rate has undergone a series of hikes totaling 450 basis points since May 2022, triggered by rising inflation.

Despite last year’s GDP growth of 5.6 percent falling below target, it exceeded expectations and has been deemed robust enough to allow for further tightening measures if deemed necessary.

Chanco anticipates that the BSP could initiate rate cuts as early as May, reducing rates by a total of 100 basis points throughout the year.

Nicholas Antonio Mapa, a senior economist at ING Manila Bank, suggested that the central bank would adopt a cautious approach in the short term, initiating easing only after observing rate cuts by the US Federal Reserve.

Business News: Interest rates remain elevated experts predict economic growth decline