Philippine economy robust to absorb 75bps increase in policy rate

The economy continues to be robust to absorb the recent monetary policy rate increase by the Bangko Sentral ng Pilipinas (BSP), given the favorable expansion of economic activity early this year.

This was the assurance of Finance Secretary Benjamin Diokno, following the BSP Monetary Board’s decision to raise the interest rate on overnight reverse repurchase facility by 75 basis points to 3.25 percent, effective today, July 14, 2022. Accordingly, the interest rates on the overnight deposit and lending facilities were raised to 2.75 percent and 3.75 percent, respectively.

The BSP previously raised interest rates by 25 basis points in May, and by another 25 basis points in June.

“The [Development Budget Coordinating Committee’s (DBCC)] target range for the GDP growth rate has been set to be able to incorporate the various pace of monetary policy normalization by the BSP,” Secretary Diokno told reporters.

Last week, the DBCC adjusted the economic growth rate assumption for 2022 from 7-8 percent to 6.5-7.5 percent of gross domestic product (GDP) to reflect recent domestic trends and challenges from external developments.

“Remember [that] the economy was growing at that rate before the pandemic, when policy rate was at 4 percent. We estimate that the economy will be back to where it was before the pandemic by [the] middle of this year, or by the third quarter of 2022 at the latest. The BSP simply accelerated the normalization process,” Secretary Diokno elaborated.

Secretary Diokno said that the national government will continue to adopt a gradual and calibrated path of fiscal consolidation to help sustain the strong growth momentum.

He also said that the growth outlook is supported by the safe re-opening of the economy through loosened quarantine restrictions, as well as the positive impact of structural reforms, including the Corporate Recovery and Tax Incentives for Enterprises Act, the Financial Institutions Strategic Transfer Act, Rice Tariffication Act, and the amendments to the Foreign Investments Act, Retail Trade Liberalization Act, and Public Service Act.