The Bangko Sentral ng Pilipinas, or BSP, said it might raise its policy rate if the economic expansion in the last quarter of 2023 proves substantial.

BSP Governor Eli Remolona Jr. said this in addition to his assessment that the economic growth in the fourth quarter of the previous year likely quickened.

“I think it’s going to be better than the third quarter because the second quarter was quite an aberration in terms of growth,” he told the media at the 2024 Annual Reception for the Banking Community last Friday.

“If the growth is strong, that gives us a bit of room to hike. That means the economy can absorb a high interest rate,” Remolona added.

Private consumption usually comprises 70 percent of the country’s gross domestic product or GDP, based on the data from the Philippine Statistics Authority.

The BSP has imposed a 6.5 percent policy rate on banks in October last year as it continues to stabilize inflation within its target range of 2 to 4 percent.

A higher interest rate prevents inflation from drastically rising as it restrains consumers’ demand for goods and services.

Private consumption slightly slowed in the third quarter to 5 percent from 5.5 percent in the second quarter as inflation accelerated from 4.7 to 6.1 percent or higher than the BSP’s target.

Public spending keys growth

With higher government spending, GDP in the third quarter expanded from 4.3 to 5.9 percent, according to the statistics authority.

For the fourth quarter, economists, in general, say consumption grows as Filipinos make Christmas celebrations.

However, Remolona stressed the BSP is not seeing new inflationary risks and expects inflation this month to slow further.

“Inflation for January will likely be a low number because of base effects. You have to adjust the base effects because the January number will be measured relative to January 2023 which was high at 8.7 percent,” he said.