High inflation clouds Philippine growth outlook in 2023, IMF says

October 4, 2023 - 9:33 AM
A shopping cart is seen in a supermarket as inflation affected consumer prices in Manhattan, New York City, U.S., June 10, 2022. (Reuters/Andrew Kelly/File Photo)

 The Philippine economy is on track to expand this year, but probably at a slower clip, as stubbornly high inflation may warrant a “higher-for-longer policy rate path,” the International Monetary Fund (IMF) said on Tuesday.

The Fund said it cut its growth forecast for the Philippines to 5.3% from a July estimate of 6.2%, following a slowdown in second quarter growth, while inflation is expected to stay elevated, hurting consumer demand.

For the year, the IMF expects Philippine inflation to average close to 6.0%, before easing to close to 3.5% in 2024, which would probably require the central bank to hold on to higher interest rates PHCBIR=ECI.

“Thus, a higher-for-longer policy rate path is warranted until inflation firmly falls within the target range, alongside a tightening bias to anchor inflation expectations,” the Fund said in a statement.

The central bank has kept interest rates steady at its last two meetings, but left the door open to further rate hikes to bring inflation back to its target of 2.0% to 4.0% for the year, after it quickened in August to 5.3%.

For 2024, the Philippine economy is projected to expand 6.0%, faster than its previous estimate of 5.5%, the Fund added.

The IMF’s revised projections were lower than the government’s targets of 6.0% to 7.0% this year and 6.5% to 8.0% next year.

– Reporting by Karen Lema and Mikhail Flores; Editing by Martin Petty and Clarence Fernandez