BSP chief says economy can absorb one more rate hike

By Katherine K. Chan, Reporter

THE PHILIPPINE ECONOMY can still absorb another rate hike as growth is expected to rebound in the second half of the year, the Bangko Sentral ng Pilipinas (BSP) said.

BSP Governor Eli M. Remolona, Jr. said he hopes the country’s gross domestic product (GDP) will grow over 3% in the latter half of 2026 as the government ramps up spending.

Speaking to reporters on the sidelines of an event on Monday, he noted that the economy can still manage if the BSP extends its tightening cycle to deliver another 25-basis-point (bp) rate hike.

Asked if the economy can still handle another rate hike, the BSP chief said in a mix of Filipino and English: “It can, because 25 bps is small. It’s nominal” 

“If you deduct inflation from that, it’s still low,” he added.

However, Mr. Remolona did not answer when asked how much space they still have for additional 25-bp increases.

In the first quarter, the Philippine GDP growth slowed to 2.8% from 3% in the previous quarter and 5.4% a year ago, amid the Middle East war-driven energy shocks and lingering effects of last year’s flood control scandal.

The Development Budget Coordination Committee (DBCC) has already lowered its growth target this year to 3.5-4.5% from 5-6% previously.

Mr. Remolona noted that the economy is still grappling with tepid public spending due to the flood control mess fallout.

“The problem this year is there was a lack of government spending.  So, we expect to recover strongly in the second half of the year. Because of the flood control (scandal) they became strict with spending. But that might be okay by the second half,” he added.

As of May, government spending grew by 4.81% year on year to P2.6 trillion from P2.48 trillion a year ago. The DBCC has set a P6.46-trillion disbursement program for this year.

Mr. Remolona said the government has to be more disciplined in spending to help the economy recover in the July-to-December period.

“The catch-up plan is to start spending what we should have been doing, what we should have been spending if not for the flood control,” he said.

The BSP chief said there should be a rebound in the government spending in the second semester.

Despite the sluggish economy, the central bank capped its easing cycle in April to raise key borrowing costs for the first time in over two years amid emerging price pressures from the energy crisis.

Mr. Remolona said the Monetary Board’s decision came as they are banking on fiscal policy to support growth while they focus on containing inflation risks.

Last month, the BSP delivered its second straight 25-bp hike to bring the benchmark rate to 4.75% as it flagged broadening spillover effects of elevated oil prices.

Mr. Remolona at that time said they still have a lot of space to tighten but will likely stick to 25-bp hikes unless second-order price effects worsen further. 

In May, headline inflation eased to 6.8% from the over three-year high of 7.2% in April, bringing the five-month average to 4.5%.

For June, a BusinessWorld poll of 18 analysts showed the headline print likely continued to breach the BSP’s 2%-4% goal as it yielded a median forecast of 6.6%.

The central bank sees inflation settling above its target over the next three years at 6.4% in 2026, 4.5% in 2027, and 3.1% in 2028.

The Monetary Board is scheduled to hold three more policy reviews this year on Aug. 27, Oct. 22, and Dec. 17.