BSP weighs weak growth as inflation stays elevated

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) signaled that it would factor in the sharp slowdown in economic growth when setting interest rates, even as elevated inflation keeps pressure on the central bank to maintain a tight monetary stance.

“In the face of a difficult combination of elevated inflation and slowing economic growth, the BSP remains determined to fulfill our mandate of pursuing price stability conducive to sustained and balanced growth,” the BSP said.

The central bank  said monetary policy could not directly control inflation caused by recent global supply shocks, but would focus on preventing these price increases from spreading more broadly through the economy and dislodging inflation expectations.

“In the BSP’s efforts to bring inflation down, it takes important account of the weakness in aggregate demand.  It is also mindful of the need to prevent the de-anchoring of inflation expectations,” it said.

Gross domestic product (GDP), the total value of goods and services produced by the economy, grew by just 2.1 percent in the third quarter, down from 2.4 percent in the second quarter and four percent a year earlier.

Meanwhile, headline inflation accelerated to 7.8 percent in October from 7.2 percent in September, while core inflation, which strips out volatile food and energy items, climbed to 5.4 percent.

“We are carefully assessing the implications of the latest growth data for the inflation outlook. Future monetary policy decisions will continue to be guided by incoming data,” the BSP said.

“The BSP will ensure that monetary policy settings remain appropriate and consistent with its mandate of promoting price stability conducive to sustainable economic growth,” it added.

Metrobank chief economist Nicholas Mapa said the latest GDP report showed a broad-based slowdown, with household consumption losing momentum under the weight of high inflation and elevated debt levels.

Private investment has also remained subdued following successive rate increases and weaker business sentiment, while government spending faces pressure from higher interest payments, he said.

Mapa said the slowdown strengthens the case for the BSP to keep rates unchanged at its Dec. 17 policy meeting.

“Given that rate hikes have only a marginal effect on controlling supply-side inflation, BSP can push back on calls for over-aggressive tightening at this stage and help safeguard whatever is left of growth momentum,” he said.

“Furthermore, given all the challenges, it wouldn’t make a whole lot of sense to step hard on the brakes when we’re driving uphill on rocky terrain.”

The BSP has raised its benchmark rate to 5.50 percent as it seeks to contain second-round inflation effects and keep inflation expectations anchored.

The central bank said signs of improvement would include easing inflation, steadier inflation expectations, stronger business and consumer confidence and a recovery in investment and employment.