‘BSP sees less need for aggressive rate hikes’

AMID weak economic growth

MANILA, Philippines — The Bangko Sentral ng Pilipinas can afford to be less aggressive in raising interest rates as economic growth remains below potential, but policymakers still need to see a more convincing decline in inflation before relaxing their stance, BSP Governor Eli Remolona Jr. said.

Speaking at the 2026 Economic Journalists Association of the Philippines (EJAP) Economic Forum yesterday, Remolona said the widening gap between the economy’s actual and potential growth has become an important consideration for monetary policy alongside elevated inflation.

“Negative output gap means we’ve become less aggressive in terms of raising the policy rate in order to tame inflation. So we take account of both the weakness of our growth as well as our expectations of inflation. So both enter the picture,” Remolona said. 

He estimated the economy’s potential growth at around five to six percent, well above the 2.3-percent expansion recorded in the second quarter. 

However, he declined to indicate whether the weaker growth outlook would translate into a pause at the Monetary Board’s next policy meeting on Aug. 27.

At the same time, Remolona stressed that the BSP is not yet ready to declare victory over inflation despite the recent easing in price pressures.

Headline inflation slowed to 6.2 percent in July after reaching as high as 7.2 percent earlier this year, but it remains more than double the BSP’s three-percent target. 

“With the growth numbers, and with the inflation numbers, I think we need a more convincing downward trend for inflation before we can relax,” Remolona said.

“Of course, the weaker growth that we’re seeing means we can be less aggressive in trying to tame inflation. But in the face of an unpredictable opponent, oil prices, for example, we need to keep our eye on the ball,” he added.

Remolona noted that much of the recent inflation surge has been driven by global supply shocks, particularly higher energy and food prices amid the conflict in the Middle East.

Oil costs have also affected food prices through fertilizer inputs such as urea, he said. 

While the BSP has limited ability to directly counter global supply shocks, Remolona said monetary policy can help contain their second-round effects as higher energy and food costs spread to other goods and services. 

Asked whether the combination of weak growth and elevated inflation meant that the Philippines was experiencing stagflation, Remolona rejected the characterization.

“It’s not a useful term for us at the moment. Stagflation usually means negative growth. We’re still growing (although) we’re below potential,” he explained.

The BSP has raised policy rates by 50 basis points this year, bringing its key interest rate to 4.75 percent after consecutive 25-bp hikes in April and June. The Monetary Board will next meet on Aug. 27 to discuss policy.