The Bangko Sentral ng Pilipinas (BSP) expects the country’s economic growth in the near future to settle at the lower end of the targets of the Development Budget Coordination Committee (DBCC) due to tempered consumption of goods and services.

The DBCC recently announced that it projects economic growth to settle within six to 6.5 percent this year and six to eight percent in the next four years or until 2028.

“The Monetary Board noted that domestic demand is likely to remain firm but subdued,” BSP Governor Eli Remolona Jr. said.

“The gross domestic product could come closer to the lower end of the target range. There are a lot of uncertainties,” BSP Assistant Governor of Monetary Policy Sub-sector Zeno Abenoja added.

Policy rate below 5.75 percent

Remolona said the Monetary Board is open to easing its policy rate further below 5.75 percent next year to drive consumption of goods and services.

However, he said the BSP will be taking “baby steps” amid still stronger US dollar against the peso and concerns about the global inflationary impact of reelected US president Donald Trump’s protectionist policies.

“We’re doing some assessments on the impact of his presidency. We’re looking at what will be the impact on international oil and non-oil prices,” Abenoja said.

Import tariffs

Trump has expressed his intent to raise tariffs on all imports by at least 10 percent which economists said could limit supplies of materials from exporters or be passed to consumers, resulting in higher global inflation.

With such a scenario, Abenoja said the BSP might consider slowly cutting its policy rate in keeping close to the US Federal Reserve’s own rate to also maintain healthy investment and foreign exchange levels.

“In September, Federal Reserve analysts were looking at a total cut of 100 basis points for next year. Now, their estimates are down to 50 basis points,” he said.

A report by the International Institute of Finance (IIF) said the US will likely continue to redirect investors’ funds from emerging markets like the Philippines due to high US interest rates, which could temper Philippine production and consumption activities.

“A stronger US dollar, driven by resilient US growth or shifts in global risk sentiment, could exacerbate the burden of dollar-denominated debt in emerging economies and contribute to inflationary pressures through higher import costs,” the IIF said.

The IIF also said the US dollar has appreciated by six percent in trade-weighted terms this year. However, IIF analysts project less negative impact from the currency’s movement on other countries’ economies.

“The appreciation mirrored the magnitude of the first Trump administration in 2016, exacerbating trade competitiveness issues for exporters. However, the dollar’s gains against emerging market currencies were more subdued compared to 2016,” the IIF said.