Dominguez: Recent rate hikes won't have serious impact on economy
MANILA, Philippines — The Bangko Sentral ng Pilipinas’ back-to-back rate hikes to fight inflation won’t have a significant impact on the economy, the country’s finance chief said Tuesday, giving the economic managers enough room to keep its 2018 growth target for the time being.
Inflation jumped 5.7 percent in July, higher than June’s 5.2 percent and the fastest pace in nine years. The central bank has responded by raising its benchmark rates by a cumulative 100 basis points from May to August.
At a forum organized by the Economic Journalists Association of the Philippines, Finance Secretary Carlos Dominguez III said the current policy rates are “totally appropriate” and “data-driven."
"While they (rate hikes) may have some effect on the growth rate, we don’t think it’s going to be that serious because the economy is really growing at quite a fast pace,” Dominguez said.
“So it may affect it a bit but I don’t think it will be significant,” he added.
Higher interest rates discourage people from borrowing money and from spending, causing a decline in demand which, in turn, tempers inflation and can even slow down the country’s economic growth.
The government plans to ramp up infrastructure spending to 7.3 percent of the country’s gross domestic product by the end of Duterte’s six-year term, and supercharge economic growth to 7-8 percent from this year up to 2022. But in the second quarter of 2018, the Philippine economy grew at its slowest pace in three years and failed to meet both government and market expectations.
Some analysts expect economic growth to continue to decelerate over the second semester of the year as tighter monetary policy and higher inflation weigh on consumer spending, which accounts for about seven-tenths of the Philippine economy.
Despite what he called "restrained growth performance during the second quarter" and the recent round of monetary policy tightening, Dominguez said the government’s economic growth goal “remains for now.”
At the same journalists’ forum, central bank Governor Nestor Espenilla said inflation will probably peak in the third quarter and is unlikely to hit 6 percent.
“What’s most important for the BSP is to send a very strong signal to the whole community that we are very committed to retuning the inflation path back on target and we are prepared to deploy our instruments,” Espenilla said.
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