RESTRICTIVE monetary policy continues to limit investment momentum and the Philippines will again likely miss its growth targets, the research unit of Metropolitan Bank & Trust Co. (Metrobank) said.
"We continue to believe that the country's economic growth should remain robust, albeit at a moderated pace," Metrobank Research said in a commentary.
High interest rates are making it more difficult for businesses to invest and expand, it noted, adding that Filipinos are not spending as much as before and that some households have also incurred more debt.
"Despite these challenges, the economy continues to move forward, just at a more measured pace than initially hoped," it said.
Metrobank Research trimmed its 2024 and 2025 growth forecasts for the country to 5.7 percent and 6.0 percent, respectively, from 6.0 percent and 6.0-7.0 percent.
Both fall short of the 6.0- to 7.0-percent target for this year and the 6.5-7.5 percent for 2025 — goals that economic managers had lowered in March, from 6.5-7.5 percent and 6.5-8.9 percent in December, and affirmed last month.
"Additional efforts will be needed to reach the government's target," Metrobank Research said.
Growth was a below-target 5.5 percent in 2023 — the target was 6.0-7.0 percent — and government underspending was said to be a major factor. The expansion picked up to 5.7 percent in the first quarter of 2024, also below target and lower than the 6.4 percent posted a year earlier.
Preliminary second-quarter data will be released Thursday next week. Economic managers have expressed optimism about an improvement and further gains that will allow for at least 6.0 percent growth for 2024.
Metrobank Research also revised its inflation forecasts and said the rate was likely to settle at 3.3 percent this year and further decline to 3.1 percent in 2025 from the previous forecasts of 3.3-3.6 percent and 3.3-3.7 percent.
Lower rice prices "should help keep overall prices more stable," it said, adding that "we agree with the Bangko Sentral ng Pilipinas (BSP) that inflation will stay within acceptable levels this year and next."
It warned of looming challenges, such as a strong La Niña weather event that could affect crop output and prices. Additionally, geopolitical events could disrupt supply chains and drive prices up.
"While the future looks promising for stable prices, our outlook may change," Metrobank Research said.
It believes the BSP might lower rates twice this year, with a possible third cut in December if "prices remain stable and financial markets remain calm."
The central bank's benchmark rate currently stands at 6.5 percent, the highest since 2007, after 450 basis points of rate hikes beginning May 2022 as inflation started surging.
BSP Governor Eli Remolona Jr. has signaled that an easing could start as early as August, ahead of the US Federal Reserve that is expected to start doing so in September.
Metrobank Research said the BSP could cut by a total of 75 basis points this year and by another 75 bps next year.
"However, these decisions are also dependent on what the United States Federal Reserve does with its own interest rates," it added.
"The BSP will keep a close eye on how quickly the US lowers its rates, as this can affect the Philippine economy and the value of the peso."
News of an early easing has weighed on the peso, which has been trading at the P58:$1 level for over two months.
Metrobank Research said that a wider current account deficit, where the Philippines imports more than it exports, could establish a new baseline for the currency's value.
"As a result, the peso might not strengthen significantly against the dollar but settle at an exchange rate of about P57.20 per dollar by year-end," it said.
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