WB: High interest rates to weigh on PH growth
Credit to Author: ANNA LEAH E. GONZALES| Date: Mon, 18 Feb 2019 16:19:40 +0000
Keeping higher interest rates will affect the country’s long-term growth, a World Bank (WB) economist said on Monday.
“A higher interest rate would mean a lower growth in the long term,” WB senior economist for the Philippines Dr. Rong Qian said at a Management Association of the Philippines’ (MAP) economic briefing and general membership meeting.
The Bangko Sentral ng Pilipinas (BSP) last year increased policy rates by 175 basis points to counter rising inflation. Qian said inflation settling within or below government’s target would allow the BSP to cut policy rates.
“What would be the BSP’s stance, I don’t know, but I would think that as a policymaker, when the inflation is coming down, and their only goal is to manage inflation and not growth, then when inflation goes down to below the target, they are more likely to reduce the interest rate to give them the policy room to react on higher inflation,” she said.
Inflation eased to 4.4 percent in January, allowing the BSP to keep policy rates unchanged.
“In the long term, if they maintain high interest rates, it would have an impact on growth, and it would be prudent to reduce it, if they want to. If the inflation goes down as projected, they are likely to [cut] down to have the policy room to react to higher inflation, which is their mandate,” Qian said.
The BSP earlier cut its inflation forecast to 3.07 percent this year from 3.18 percent earlier. Next year’s projection was also cut to 2.98 percent from the earlier 3.04 percent.
“As the inflation goes down, if the BSP reacts to reduce the real interest rate, that would boost growth,” said Qian.
The Philippine economy grew by 6.2 percent last year. In 2017, it expanded by 6.7 percent. For this year, the government is targeting a 7-8 percent growth.
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