Balisacan: BSP inflation fight must go with growth push

The Bangko Sentral ng Pilipinas (BSP)’s fight against rapidly rising inflation must complement fiscal policy efforts to restore economic growth, Economy, Planning and Development Secretary Arsenio Balisacan said.

In a Monday morning press conference following the release of the country’s third-quarter gross domestic product (GDP) figures, Balisacan said consumption—which accounts for roughly 73 percent of Philippine GDP—slumped further to 2.4 percent from 2.9 percent in the previous quarter, highlighting the loss of purchasing power as higher prices stemming from the Middle East conflict weigh on households.

“Inflation is still high, and I think even for November, inflation will continue to be challenged because of the lag effects of the previous increases in prices of goods and services coming from the fuel price increase,” he said.

“Typically, changes in interest rates have longer effects. They have time lags. So any change last month would impact on the economy, not only today, but months ahead,” Balisacan added.

Inflation spiked to a new three-year high of 7.8 percent in October, driven by persistent price pressures stemming from the broader effects of the Gulf oil supply shock. The central bank has implemented four consecutive policy rate hikes since March 2026, totaling 125 basis points, to bring inflation back toward its annual 3 percent target, which it expects to be exceeded until 2028.

Balisacan said higher interest rates resulting from the BSP’s efforts to rein in inflation should help restore market confidence, but stressed that fiscal policy must also support economic growth.

“With both fiscal and monetary tools being deployed to get those inflation expectations anchored on the targets, we expect those to change the sentiments of both consumers and business,” he said.

“I should also say that while we are seeing if the BSP actually succeeds in anchoring the inflation expectation back to the target, then that actually will impact positively on consumption and investment.”

BSP rate hikes typically come at the expense of economic growth, as higher borrowing costs can discourage consumption and investment. BSP Governor Eli Remolona Jr. has acknowledged that monetary policy decisions must go hand in hand with fiscal policy to effectively restore the overall health of the economy.

“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 in May.

In a commentary, Bank of the Philippine Islands (BPI) lead economist Emilio Neri Jr. said the trade-off between growth and price stability could constrain the BSP’s policy options, although he continued to project further rate hikes in the coming months as inflation remains elevated.

“Higher interest rates cannot directly address supply-side constraints such as oil prices, but monetary tightening still plays an important role in inflation management and in anchoring inflation expectations,” he said.

“Pausing too soon while inflation is trending higher could risk creating the perception that monetary policy is falling behind the curve, potentially allowing inflation to become more entrenched,” Neri added.

Neri noted that while additional rate hikes may weigh on GDP in the short term, restoring price stability through monetary policy could support a faster and more sustainable economic recovery.

Meanwhile, Balisacan said the Development Budget Coordination Committee, of which both DEPDev and the BSP are members, would meet “early next month” to recalibrate its current growth assumptions and targets.