Lower interest rates as the Bangko Sentral ng Pilipinas (BSP) eases monetary policy would aid consumers battered by slowing economic growth across Asia-Pacific, according to the think tank Oxford Economics.
The BSP's rate cuts "will help household balance sheets, especially as debt levels rose over the pandemic," Oxford Economics chief Asia economist Arup Raha said in an email Thursday.
Across the region, "the Asian consumer faces two challenges on top of higher real rates: a slowdown in activity and hence incomes; and a need to rebuild savings after the pandemic," Raha noted in Oxford Economics' Sept. 5 report titled "Asia Pacific: Summertime blues foreshadow the slowdown."
The Monetary Board cut the key policy rate by 25 basis points to 6.25 percent last August, a move seen to have jump-started the BSP's easing cycle following the past two years' high inflation environment.
"But monetary policy takes time to really have an impact, so don’t expect much effect this year," Raha said.
"The good news is that the BSP, which was very hawkish, feels that inflation is under control and is confident enough to lower rates," Raha added.
Headline inflation fell to a seven-month low of 3.3 percent in August, bringing the end-August average rate to 3.6 percent, within the government's 3-4 percent target range of manageable year-on-year price hikes.
Year-to-date inflation is below the average of 5.8 percent in 2022 and six percent in 2023—the highest annual rate since the 8.2 percent recorded in 2008 at the height of the global financial crisis.
Elevated inflation was one reason why consumers were holding on to their hard-earned money, such that consumption shrank by 0.2 percent and 0.1 percent quarter-on-quarter during the first and second quarter, respectively, of 2024, Oxford Economics data showed. Private-sector and household consumption account for three-fourths of the Philippine economy.
While inflation eases, "we do expect consumption demand to moderate, but not by much," Raha said, adding that "as much of the consumption in the Philippines is on necessities, there isn’t scope to lower it."
With shrinking exports and "volatile" investment growth in the country, low quarter-on-quarter economic growth is expected to persist.
"We expect a slowdown across Asia and the Philippines is no exception," Raha said.
The quarter-on-quarter gross domestic product (GDP) growth in the Philippines had been slowing—to 0.5 percent in the second quarter of this year, compared with 1.1 percent in the first quarter, 1.9 percent in the fourth quarter of last year, and 2.8 percent in the third quarter of 2023.
Across the Asia-Pacific region, Raha noted in his report that "in quarter-on-quarter terms, consumption demand in the second quarter moderated in almost all countries, with Malaysia and India the notable exceptions."
"Taken together, it appears that not only has the slowdown arrived, it's also widespread... The rest of the economy across most of Asia is struggling. And given the need for balance sheet repair and the lack of powerful growth drivers, the slowdown, while not sharp, could be drawn out," Raha said.