{"id":19947,"date":"2024-07-29T03:00:34","date_gmt":"2024-07-29T03:00:34","guid":{"rendered":"https:\/\/energybuzz.ph\/staging\/6915\/high-rates-seen-to-weigh-on-growth\/"},"modified":"2024-07-29T03:00:34","modified_gmt":"2024-07-29T03:00:34","slug":"high-rates-seen-to-weigh-on-growth","status":"publish","type":"post","link":"https:\/\/energybuzz.ph\/staging\/6915\/high-rates-seen-to-weigh-on-growth\/","title":{"rendered":"High rates seen to weigh on growth"},"content":{"rendered":"
\n

By Luisa Maria Jacinta C. Jocson, <\/b>Reporter <\/i><\/span><\/p>\n

METROPOLITAN Bank & Trust Co. (Metrobank) Research trimmed its gross domestic product (GDP) forecast for the Philippines this year as elevated interest rates continue to crimp domestic demand.<\/span><\/p>\n

\u201cWe continue to believe that the country\u2019s economic growth should remain robust, albeit at a moderated pace as investment momentum remains constrained by tight monetary policy, making it harder for businesses to invest and expand,\u201d it said in a report.<\/p>\n

Metrobank Research sees the economy growing by 5.7% this year, lower than its previous 6% forecast.<\/p>\n

If realized, this would fall short of the government\u2019s 6-7% growth target this year, but slightly faster than the 5.5% GDP expansion in 2023.<\/p>\n

Metrobank noted that \u201cadditional efforts\u201d would be needed to reach the government\u2019s goal.<\/p>\n

In the first quarter, GDP expanded by 5.7%. Second-quarter GDP data will be released on Aug. 8.<\/p>\n

Metrobank also noted that many Filipinos are not spending as much as before amid higher borrowing costs.<\/p>\n

\u201cSome households have also incurred more debt. Despite these challenges, the economy continues to move forward, just at a more measured pace than initially hoped,\u201d it said.<\/p>\n

In June, the Bangko Sentral ng Pilipinas (BSP) kept its key rate steady at 6.5%, the highest in over 17 years.<\/p>\n

The Monetary Board has raised borrowing costs by a cumulative 450 basis points (bps) from May 2022 to October 2023.<\/p>\n

For 2025, economic growth is seen to average 6%. This would also miss the government\u2019s 6.5-7.5% target range.<\/p>\n

Meanwhile, Metrobank Research said it expects in<\/span>f<\/span>lation to settle within the BSP\u2019s 2-4% target this year and in 2025.<\/span><\/p>\n

\u201cThe price of rice, which has been a major reason for rising costs in the Philippines, is expected to go down. This should help keep overall prices more stable. We agree with the BSP that inf<\/span>lation will stay within acceptable levels this year and next.\u201d<\/p>\n

For this year, it sees inf<\/span>lation averaging 3.3%, and 3.1% in 2025, in line with the BSP\u2019s baseline forecasts.<\/p>\n

Headline inflation eased to 3.7% in June, marking the seventh straight month that it settled within the BSP\u2019s 2-4% target band.<\/p>\n

Rice in<\/span>f<\/span>lation eased to 22.5% in June from 23% a month ago. This marked the third straight <\/span>month of slower rice in<\/span>f<\/span>lation.<\/span><\/p>\n

\u201cHowever, some challenges loom ahead. A strong La Ni\u00f1a weather event could affect crop production and prices,\u201d Metrobank Research said.<\/p>\n

\u201cAlso, geopolitical events could affect supply chains and push prices up as well. While the future looks promising for stable prices, our outlook may change.\u201d<\/span><\/p>\n

Meanwhile, Metrobank Research sees the central bank possibly delivering up to three rate cuts this year.<\/p>\n

\u201cWe believe the BSP might lower rates twice this year, with a possible third cut in December if prices remain stable and the f<\/span>inancial markets stay calm,\u201d it said.<\/p>\n

BSP Governor Eli M. Remolona, Jr. has previously signaled that they are on track to begin policy easing by August. He earlier said the central bank can cut by up to 50 bps this year.<\/p>\n

If the BSP reduces rates in August, this would be the f<\/span>irst rate cut since November 2020.<\/p>\n

\u201cHowever, these decisions are also dependent on what the United States Federal Reserve does with its own interest rates. The BSP will keep a close eye on how quickly the US lowers its rates, as this can a<\/span>f<\/span>fect the Philippine economy and the value of the peso,\u201d it said.<\/span><\/p>\n

The peso is also seen to rebound by yearend, settling at around P57.20 against the dollar, according to the report.<\/p>\n

The Development Budget Coordination Committee expects the peso to range from P56 to P58 per dollar this year.<\/p>\n

The peso closed at P58.35 per dollar on Friday, strengthening by 8.5 centavos from its P58.435 f<\/span>inish on Tuesday.<\/p>\n

In May, the local currency sank to the P58-per-dollar level for the first time since November 2022.<\/p>\n

\u201cThe US dollar\u2019s strength is expected to wane when the Fed lowers interest rates. Meanwhile, the Philippine central bank is also likely to reduce its rates, which could increase imports as the economy grows,\u201d Metrobank Research said.<\/span><\/p>\n

Markets are currently pricing in a near-certainty that the Fed will begin cutting interest rates at its September meeting and expect 66 bps in total cuts by the end of the year, according to CME\u2019s FedWatch Tool, Reuters reported.<\/p>\n

\u201cLooking ahead, a wider current account, where the Philippines buys more from other countries than it sells, could also establish a new baseline for the peso\u2019s value,\u201d Metrobank added.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

METROPOLITAN Bank & Trust Co. (Metrobank) Research trimmed its gross domestic product (GDP) forecast for the Philippines this year as elevated interest rates continue to crimp domestic demand.<\/div>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","footnotes":""},"categories":[1],"tags":[14644,11413,1421,8579,4778,14667],"class_list":["post-19947","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-bworldonline","tag-growth","tag-high","tag-rates","tag-seen","tag-weigh"],"yoast_head":"\nHigh rates seen to weigh on growth - Energy Buzz<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/energybuzz.ph\/high-rates-seen-to-weigh-on-growth\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"High rates seen to weigh on growth - Energy Buzz\" \/>\n<meta property=\"og:description\" content=\"METROPOLITAN Bank & Trust Co. 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