Filipino borrowers hoping for a reduction in interest rates will have to hold their horses as the anticipated rate cuts may not come in the near future.

Finance Secretary Ralph G. Recto said on Friday, April 26, that elevated inflation is likely to persist, and interest rates may remain high for a longer period of time.

However, there are some consolations, as Recto believes the cost of borrowing locally seems unlikely to increase further.

Sticky inflation and tight monetary policy are posing a significant challenge to global economic growth. 

The US Federal Reserve had stated that interest rate cuts may be delayed due to persistently high inflation, leaving many analysts uncertain about the central bank’s plans for the year.

“Looks like inflation will be sticky, and rates may be higher for longer,” Recto, who sits on the Monetary Board, told Manila Bulletin. 

“However, I don’t expect rates to go up but may be reduced either the fourth quarter or first quarter next year when inflation settles lower,” he added.

High-interest rates make borrowing more expensive for loans and mortgages. This aims to encourage people to spend less, which in turn helps to lower inflation by reducing demand.

However, high-interest rates may lead to slower economic growth.

“It would have been better if inflation were lower and policy rates were adjusted downward by both Fed and BSP [Bangko Sentral ng Pilipinas]. The Philippines would have a better chance of achieving a higher growth rate,” Recto said.

President Marcos’ economic managers earlier revised downward its gross domestic product (GDP) target for 2024 to 6.0 percent to 7.0 percent from the previous range of 6.5 percent to 7.5 percent.

However, the economic team has maintained its inflation forecast of 2.0 percent to 4.0 percent for the current year.

The BSP has maintained its benchmark rate at 6.50 percent for the fourth consecutive meeting in April.

“It [interest rate cut] all depends on inflation outlook which we are monitoring continuously,” Recto said.