Anemic GDP seen to temper rate hikes
The weaker second-quarter growth could prompt the central bank to slow the pace of rate increases, or pause them altogether, as policymakers may seek to avoid adding pressure to an economy already strained by high inflation and weak confidence, analysts said.
In a note to clients, Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said the Bangko Sentral ng Pilipinas (BSP) may think harder about delivering another rate increase after growth had slowed to another postpandemic low last quarter.
Gross domestic product (GDP), the value of all goods and services produced in the country, grew just 2.3 percent in the three months through June, according to data released last week. It was the weakest quarterly expansion in 16 years outside the pandemic, putting the Marcos administration’s 2026 growth target of 3.5 percent to 4.5 percent further out of reach.
Cooling inflation, which eased for the third straight month in July, could give the Monetary Board enough room to prioritize growth this time, Chanco added. Consumer prices rose 6.2 percent from a year earlier in July, down from 6.4-percent clip in June but still above the central bank’s 3-percent target.
“In terms of monetary policy, we expect today’s disappointing result to make the Board think twice later this month about hiking rates further—we expect no movement—especially with headline inflation continuing to trend downwards,” Chanco said.
Since April, when the central bank began its tightening cycle, it has raised its policy rate by a total of half a percentage point to 4.75 percent, seeking to contain inflation amid an oil-price shock linked to the US-Iran war. BSP Governor Eli Remolona Jr. has said there was only a “little chance” of aggressive rate increases, even as renewed fighting in the Middle East pushed global oil prices higher again in July.
When the Monetary Board meets on Aug. 27, it will have to weigh an economy that is losing momentum against inflation that remains stubbornly high.
Still, economists at Nomura said the rate-hiking cycle was not yet over despite the weak growth. They forecast another half-percentage-point of increases this year, delivered in quarter-point moves in August and October.
“We believe BSP will likely maintain a measured approach to monetary tightening,” they added.
Gareth Leather, senior Asia economist at Capital Economics, expects one more quarter-point hike at the next monetary meeting on Aug. 27 before halting its hiking cycle.
