Philippines central bank weighs inflation fight against slowing growth

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Philippines bank weighs inflation fight

Highlights

Philippines Q3 GDP growth slows to 2.1%, marking the weakest pace since the pandemic and missing the government’s 3.5%-4.5% full-year target.
BSP raised its key policy rate by 50 basis points to 5.5% last month, with inflation hitting 7.8% in October and year-to-date average at 5.6%.
Moody’s Ratings highlights the Philippines’ vulnerability to El Niño-driven food-price shocks, maintaining 2023 growth at 3.3% and 2026-2027 inflation at 6%.

Policy stance amid weaker third-quarter growth

As reported by BusinessWorld Online, the Bangko Sentral ng Pilipinas says it faces the twin challenge of heated inflation and tepid growth, while remaining committed to its price stability mandate. In a statement issued late on Wednesday, the central bank says it stays determined to bring inflation under control in a way that supports sustained and balanced growth.

The central bank’s comments come as calls grow for a pause in monetary tightening after a fifth straight quarter of slowdown. Gross domestic product growth slows to 2.1% in the July-to-September period, the weakest performance since the pandemic-era 3.8% contraction in the first quarter of 2021, and outside the pandemic, the slowest expansion since the fourth quarter of 2009.

GDP growth averages 2.5% in the first nine months, below the government’s 3.5% to 4.5% full-year target. Economy Secretary Arsenio M. Balisacan says the effects of the BSP’s inflation-targeting rate hikes are likely to be felt over the coming months, although he adds that tighter policy is not necessarily negative for growth if it helps restore consumption and investment later.

The BSP says monetary policy cannot directly offset recent global supply shocks, but it can limit second-round effects by keeping inflation expectations anchored. It adds that it is weighing the implications of weak aggregate demand and the risk of de-anchored inflation expectations as it shapes its response.

Inflation outlook and external food-price risks

Inflation has stayed above the BSP’s 3% target since March, after the Middle East war-driven energy shock fed through to domestic commodity prices faster than officials anticipated. In October, headline inflation accelerates to 7.8%, a near four-year high, pushing the year-to-date average to 5.6%.

The BSP says restoring price stability and protecting household purchasing power are essential to rebuilding confidence and supporting a durable recovery. It says future policy decisions will take account of inflation, inflation expectations and economic activity, after raising its key policy rate by 50 basis points last month to 5.5%, bringing cumulative increases since April to 125 basis points. Its next rate-setting meeting is on Dec. 17.

The central bank projects inflation at 6.1% this year, 6% next year and 3.3% in 2028. It says easing inflation, steadier expectations, firmer business and consumer confidence, and renewed investment and employment growth would signal that the economy is regaining momentum.

Separately, Moody’s Ratings says the Philippines is among the emerging market economies most vulnerable to El Niño-driven food-price pressures because it is a net food importer. The agency says a strong to very strong El Niño is active in the Tropical Pacific and keeps its forecasts for Philippine growth at 3.3% this year, 5.1% in 2027 and 5.5% in 2028, while maintaining inflation forecasts of 6% for 2026 and 2027 and 4.5% for 2028.

The latest update follows our earlier article on Philippine bond reforms aimed at modernizing the market and widening investor participation.

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