’Weak Q2 GDP growth eases pressure for BSP rate hike‘

MANILA, Philippines — The weaker-than-expected second-quarter economic growth has reduced pressure on the Bangko Sentral ng Pilipinas (BSP) to raise interest rates this month, although Governor Eli Remolona Jr. said all options remain on the table.

Asked whether the 2.3-percent gross domestic product (GDP) growth in the second quarter had eased pressure to hike, Remolona said, “Yes.”

“There are still many data points coming, but GDP was weak. That feeds into what we call the output gap,” Remolona told reporters on the sidelines of the BSP Outstanding Stakeholders Appreciation Ceremony.

The economy grew by 2.3 percent in the second quarter, slower than 2.8 percent in the first quarter and 5.4 percent a year earlier. This brought first-half growth to 2.6 percent.

Remolona said the output gap, or the difference between actual and potential output, remains negative, signaling that the economy is operating below capacity.

Asked whether a pause is possible at the Monetary Board’s Aug. 27 meeting, he said, “Everything is possible. Everything is on the table. The data are somewhat weak. It is not clear.”

The BSP has raised policy rates by 50 basis points this year, bringing its key interest rate to 4.75 percent after consecutive 25-basis-point hikes in April and June.

Remolona stressed that price stability remains the central bank’s main mandate, although growth conditions are also considered. Asked how many more hikes may be needed, he said: “As much as necessary to bring inflation down to target.”

Headline inflation eased further to 6.2 percent in July from 6.4 percent in June and 6.8 percent in May, marking a third straight month of decline. However, core inflation remained elevated at 4.4 percent, unchanged from June.

BSP Deputy Governor Zeno Abenoja said policymakers are assessing inflation and GDP figures, particularly consumption and investment, alongside exports, oil prices, unemployment and wages.

“Inflation seems to be on a downward trajectory. Oil prices have come down but remain elevated and volatile,” Abenoja said.

Abenoja cautioned, however, that the improvement in headline inflation does not necessarily mean underlying price pressures have eased enough.

“Headline inflation could be trending downward for the last two prints, but aside from that, we’re looking at other measures of inflation. Core inflation may have plateaued, we don’t know. We have three data points above four percent,” Abenoja said.

A plateau in core inflation would mean underlying price pressures are no longer accelerating, but are also not yet showing a sustained decline. This remains a concern for the BSP as core inflation excludes volatile food and energy items and is closely watched as a gauge of more persistent price pressures.