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Doubt cast on PHL GDP target due to high interest rates

THE government’s 6-7% gross domestic product (GDP) target will be difficult to hit this year due to rising interest rates amid inflationary pressure, a Refinitiv analyst said.

“It’s difficult to reach the 6-7% target this year, it’s more for next year. With a policy rate this high, when the sea doesn’t rise, the boat doesn’t rise as well. If everywhere around the world policy rates are high and economies aren’t doing well, the global economy won’t (do well either). Who will buy exports? Who will do business with you? You have to consider those,” Wilson Teo, Refinitiv senior customer learning manager for Investment Banking & Academia, said in a virtual briefing on Friday.

The Bangko Sentral ng Pilipinas (BSP) has increased borrowing costs by a total of 400 basis points since May 2022, bringing the key policy rate to a near 16-year high of 6% with the goal of taming inflation.

“It’s expected the central bank will hike rates fast and (keep them high) for longer. Hopefully it will not lead to a hot landing for the Philippines. The central bank will be able to skillfully revise down its policy when it feels like it’s time to do so,” he added.

Inflation slowed to 8.6% in February from 8.7% in January. It marked the 11th consecutive month inflation exceeded the central bank’s 2-4% target.

For the first two months of the year, inflation averaged 8.6%. The BSP expects inflation to average 6.1% this year.

“Next year, there will be growth. Inflation will come down by the end of this year so by the start of next year, the policy rate will be revised downwards in every country and this will enable growth when everything normalizes,” he added.

However, Mr. Teo said that a bright spot this year is China’s reopening.

“In a lot of research reports, they have all painted a bright spot in a gloomy landscape and that comes from China’s reopening. China’s economy can help support the gloomy outlook for the global economy. That comes with the (caveat) that it does not go back on its reopening,” he said.

“China is the world’s largest consumer of commodities. China is very important to developing countries. Developing countries have a close interconnection with China; they look to China in terms of exports. If exports to China were to slow down for whatever reason, you will feel the impact on developing countries,” he added.

China was the top export destination of the Philippines, accounting for 17.3% of total exports in December. — Luisa Maria Jacinta C. Jocson

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