‘Fiscal policy should focus on growth. It should stimulate growth and then monetary policy should focus on inflation. So that’s what we’re trying to do.’
PLUGGED in Then-US Secretary of State Antony Blinken examines a mock submarine cable during a tour of NEC’s Future Creation Hub in Tokyo. The visit was meant to boost the shared US-Japan commitment to secure trusted undersea infrastructure in the Pacific.
Photo courtesy of Issei Kato /REUTERS
Fiscal and monetary policy must go hand in hand to combat the threat of stagflation, according to Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr.
Speaking in a Friday television interview, Remolona acknowledged the low growth and high inflation resulting from the Middle East conflict, noting that economic growth should be the priority of fiscal policy, while monetary policy, handled by the BSP, should focus on combating rising inflation.
“Fiscal policy should focus on growth. It should stimulate growth and then monetary policy should focus on inflation. So that’s what we’re trying to do,” the BSP chief said.
Fiscal policy refers to how a government manages the economy through taxation, spending, and borrowing. When the government spends more or cuts taxes, it can stimulate the economy and create jobs, while higher taxes or spending cuts can help slow inflation or reduce debt. The Department of Finance serves as the lead agency for fiscal policy, overseeing tax policy, government financing, and debt management.
Tools for stability
Meanwhile, monetary policy, which is handled by the BSP, primarily addresses inflation through the setting of interest and deposit rates for banks while also influencing money supply and banking stability. The BSP and fiscal agencies coordinate closely because taxes, government spending, inflation, and interest rates all affect one another.
In a recent advisory, Aris Dacanay, senior ASEAN economist at HSBC, said the three-year-high 7.2-percent inflation rate recorded in April, combined with the third consecutive quarter of slowing gross domestic product (GDP) growth, indicates that stagflation may be beginning to take shape.
Stagflation is an economic condition characterized by the simultaneous occurrence of slow economic growth, high unemployment, and rapidly rising prices.
On Friday, Remolona acknowledged the weak growth and elevated inflation, noting that the BSP’s primary focus is addressing heightened price pressures resulting from the Middle East conflict.
Economic growth slowed further to 2.8 percent in the first quarter, which Department of Economy, Planning and Development Secretary Arsenio Balisacan partly attributed to lingering effects of the flood control scandal on public infrastructure spending.
Probes into the graft controversy shaved an estimated 1.1 percentage points off 2025 GDP growth, which settled at 4.4 percent, below the government’s target for the third consecutive year.
