IMF forecasts slower growth for the Philippines as interest rates rise

Warren de Guzman, ABS-CBN News

Posted at Sep 26 2022 06:28 PM

MANILA - The International Monetary Fund on Monday said it has reduced its growth outlook for the Philippines to 6.5 percent, from 6.7 percent.

A further slowdown is seen in 2023 with growth hitting just 5 percent, the IMF said. This was lower than the IMF’s forecast growth of 6.3 percent made in January.

Slower growth in the Philippines’ major trade partners, namely China and the US, will affect the country, the IMF said. The slowdown in 2023 meanwhile is attributed to the effects of monetary policy tightening by the Bangko Sentral ng Pilipinas this year.

Regarding inflation, the IMF sees inflation hitting 5.3 percent this year, before declining modestly in 2023, and then converging back to the mid-point of the Philippine government’s preferred band of 2 to 4 percent in 2024.

Overall, the IMF said the Philippine economy remains fundamentally sound, but it has to contend with more uncertainties in the global environment.

It outlined three important challenges for the Marcos administration:
- Calibrating the policy mix to put the recovery on a firmer footing
- Building fiscal buffers as insurance against significant downside risks.
- Raising long-term growth and the standard of living of all Filipinos.


IMF Mission Head Cheng Hoon Lim meanwhile said he expects the Philippine peso to continue to depreciate, alongside other currencies, as the US continues to fight inflation with monetary policy tightening of its own. 

“As the US tightens, and the US will continue to tighten until inflation is brought under control, that will clearly have an impact on the peso. The US dollar is very strong, interest rates are very high, capital will continue to flow into the US," Lim said.

This will be a problem for countries like the Philippines which relies on importation for many commodities such as oil and rice. Lim however also suggested that the Philippines’ success with rice importation through the Rice Tariffication law may be replicated for other commodities. 

Last week, the peso slid to a historic low of P58.50 to the dollar.

Overall, the IMF says the BSP has so far acted appropriately. 

"BSP has taken prompt action to tackle inflation. Continued near-term tightening of monetary policy is appropriate to keep inflation expectations anchored and reduce headline inflation securely within the BSP's target range of 2-4 percent. Clear communication about inflation and BSP's forward looking policy intentions can help reduce uncertainty and improve policy transmission.” 

The BSP has so far raised the country’s benchmark rate by 225 basis points to 4.25 percent this year, as it tries to tame accelerating inflation. 

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