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Manila Bulletin devider Business devider Higher interest rates won't slow growth—DOF

Higher interest rates won't slow growth—DOF

Published Jul 14, 2022 01:47 pm

President Marcos’ chief economic manager said the Philippine economy would continue its robust expansion pace this year despite a rising interest rate environment.

Finance Secretary Benjamin E. Diokno said on Thursday, July 14, that the economy, as measured by the gross domestic product (GDP), would “absolutely” grow by 6.5 percent to 7.5 percent this year even with higher interest rates.

“The economy continues to be robust to absorb the recent Monetary Policy rate increase given the favorable expansion of economic activity early this year,” Diokno said.

The finance chief’s statement follows the Bangko Sentral ng Pilipinas’ (BSP) surprise off-cycle move, raising its benchmark interest rates by 75 basis points to 3.25 percent effective Thursday.

“Remember the economy was growing at that rate before the pandemic, when policy rate was at 4.00 percent,” Diokno noted. “The BSP simply accelerated the normalization process.”

He also added that the Development Budget Coordination Committee, an inter-agency body tasked to set the country’s macroeconomic assumptions, already anticipated the central bank’s actions.

“The DBCC target range for the GDP growth rate has been set to incorporate the various pace of monetary policy normalization by the BSP,” Diokno said.

The latest BSP policy action followed two back-to-back rate increases of 25 basis points each in May and June.
Despite higher interest rates, Diokno maintained that the economy will be back to where it was before the Covid-19 pandemic by middle of this year, or by the third quarter of 2022 at the latest. 

“The growth outlook is seen to be supported by the maintenance of loosened quarantine restrictions as well as the positive impact of structural reforms,” Diokno said.

These reforms include the Corporate Recovery and Tax Incentives for Enterprises, Financial Institutions Strategic Transfer Act, Public Service Act, Rice Tariffication Law, and Foreign Investment Act.

“The NG will continue to adopt a gradual and calibrated path of fiscal consolidation to help preserve the strong growth momentum,” Diokno said.

Meanwhile, Diokno disclosed that he will brief President Marcos on the justifications of the BSP’s recent move as well as policy implications.

Related Tags

Economic recovery DOF Bangko Sentral ng Pilipinas BSP Department of Finance Finance Secretary Benjamin E. Diokno
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