Infra spending not enough, PH also needs to cut rates: analyst


Posted at Aug 29 2019 08:12 PM

MANILA - The Philippines needs to cut interest rates more quickly even as it speeds up its spending on key infrastructure projects if it wants to accelerate economic growth, an analyst said on Thursday.

Following a report by Philippine economic managers on the slow rollout of key infrastructure projects, Standard Chartered Asia economist Chidu Narayanan noted that the biggest driver of growth in the last 2 years has been infrastructure spending.

Narayanan said that when infrastructure spending slowed down because of the delayed approval of the 2019 national budget, it also caused growth to slow down in the first half of the year.

He added however that the Bangko Sentral ng Pilipinas (BSP) also needs to bring down interest rates to boost private sector investment.

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"The issue is that since inflation has dropped very significantly while BSP rate cuts have come at a slow pace. Real interest rates have been very elevated, which weighed on private credit growth," Narayanan said in an interview with ANC'S Market Edge.

He added that in the "absence of credit growth, private investments have also been very soft."

"So growth pickup should come not just from the government but also from the central bank."

Narayanan, however, doubts that the country will be able to hit its 6 to 7 percent growth target for the year even with faster spending and rate cuts.

The economy grew 5.5 percent in the second quarter, from 6.2 percent during the same period in 2018, and 5.6 percent in the previous quarter.

Socioeconomic Planning Secretary Ernesto Pernia has said that the Philippines needed to grow by an average of 6.4 percent in the second half to meet even just the lower end of the growth target for the full year.

Narayanan said growth was more likely to be around 6.1 percent in the second half.

"We expect the second half to be much faster than the first half but it's very unlikely that the second half increases in pace to a significant extent to push up growth all the way to the government's target," said Narayanan.

Inflation meanwhile will continue to slow down, and may even slip to a low of 1.3 percent in the next few months, Narayanan said.