Strong growth gives BSP more flexibility to temper inflation

MANILA, Philippines — Strong economic growth continues to provide monetary authorities the flexibility to maneuver its acts to bring inflation back to the two to four percent target, according to Bangko Sentral ng Pilipinas Governor Felipe Medalla.

Medalla said the Philippines is in a strong position to meet the 6.5 to 7.5 percent gross domestic product (GDP) growth target penned by economic managers after the economy expanded by 7.6 percent in the third quarter of the year from 7.5 percent in the second quarter.

“The robust expansion recorded for Q3 2022 places the Philippines in a strong position to meet its target GDP growth rate of 6.5 to 7.5 percent this year,” Medalla said in a statement.

From January to September this year, the economy grew by 7.7 percent despite the elevated inflation that prompted the BSP Monetary Board to raise key policy rates by 300 basis points to a 14-year high of five percent from an all-time low of two percent.

“The favorable growth outcome shall also provide the BSP the flexibility to maneuver as it acts to bring inflation back to the target while helping the national government steer the economy towards a durable recovery,” Medalla said.

The latest GDP growth rate marks the sixth consecutive quarter of economic expansion after pandemic-induced contractions between the first quarter of 2020 and the first quarter of 2021.

The Philippines exited the pandemic-induced recession, booking a 5.7 percent expansion last year that reversed the 9.6 percent contraction in 2020 when the economy stalled due to strict COVID-19 quarantine and lockdown protocols.

From January to October this year, inflation averaged 5.4 percent, well above the BSP’s two to four percent target, after hitting a 14-year high of 7.7 percent in October from 6.9 percent in September.

The BSP projects that inflation  may settle at anywhere from 7.4 to 8.2 percent in November.

The central bank’s Monetary Board is widely expected to further raise interest rates in its last rate-setting meeting scheduled on Dec. 15 to anchor inflation expectations amid price pressures stemming from local and global developments.

Last Nov. 17, the BSP Monetary Board raised its inflation forecasts to 5.8 instead of 5.6 percent for this year, 4.3 instead of 4.1 percent for next year, and 3.1 instead of three percent for 2024.

In line with its mandate of ensuring price and financial stability, Medalla said the BSP stands ready to adjust its monetary policy settings and is reassured by the timely implementation of non-monetary interventions meant to address supply-side inflation pressures.