PH has 'monetary policy space'

MONETARY authorities have enough room to continue lowering interest rates given slower inflation, the International Monetary Fund (IMF) said, which could help boost economic growth that is now seen as falling below target this year and the next.

"[I]nflation is at or below target in many countries, so for countries where they are there is room to engage in monetary easing," said Krishna Srinivasan, director of the IMF's Asia and Pacific Department, when asked if the Philippines could afford to act without having to consider the US Federal Reserve's moves.

"[T]hat said, countries do ... have to look at what's happening in inflation in advanced economies, what the major central banks are doing, because that has implications for movements in exchange rates, capital flows and so on," Srinivasan said during a press conference on Thursday.

Asian countries including the Philippines have enough space to ease policy given at or below-target inflation, he said, but added that there was less room for governments to embark on spending sprees to boost growth.

"[T]here is room to ease monetary policy, again how central banks use that space will be data dependent. They have to think in terms of uncertainty ... in terms of volatility, but given where they are with inflation, many countries in the region including [the] Philippines have the monetary policy space. I would say less so on the fiscal side."

The IMF has lowered its gross domestic product (GDP) growth projections for the Philippines to 5.5 percent and 5.8 percent for 2025 and 2026, respectively, from earlier forecasts of 6.1 percent and 6.3 percent. Both fall below the government's 6.0- to 8.0-percent goal to 2028 and, if realized, mean four straight years of below-target growth since 2023.

Inflation, meanwhile, has stayed within the 2.0- to 4.0-percent target since December 2023, except for a 4.4-percent spike in July last year, and even fell to as low as 1.9 percent last September and 1.8 percent in March.

During its last meeting earlier this month where the Bangko Sentral ng Pilipinas' (BSP) policymaking Monetary Board resumed lowering interest rates after a February pause, the risk-adjusted inflation forecast for 2025 and 2026 were cut to 2.3 percent and 3.3 percent, respectively, from 3.5 percent and 3.7 percent. That for 2027 was also set at a within-target 3.2 percent.

BSP Governor Eli Remolona Jr. has said that additional rate cuts are likely and will be made in "baby steps" of 25 basis points (bps) each, but probably not during successive policy meetings. Some analysts, however, expect another 25-bps cut when the Monetary Board next meets in June.