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Benjamin Diokno, the finance secretary, stated that he urged the Bangko Sentral ng Pilipinas (BSP) to halt interest rate increases due to falling inflation.

“In my view, there should be a pause. While the current account deficit increased, it is still within sustainable bounds thanks to the expanding economy, according to Diokno in a briefing. Overall, the job market is strong, and revenues are rising. Therefore, there is little justification for raising rates.

Due to strong inflation, the BSP increased its key policy rates by 425 basis points.

The current interest rate on its overnight reverse repurchase facility is 6.25 percent.

The headline inflation rate peaked in January at 8.7 percent and dropped to 6.6 percent in April.

According to Diokno, the full effects of the rate increases may not be apparent until the second or third quarter of the year.

“There is a lag effect, which might last up to 18 months at the earliest. But if they keep the rate at 6.25 percent, we have no idea what will happen after that. It’s not yet completely felt. We very recently began changing the rate in May of last year, he added.

While rate increases may impact economic activity, Finance Undersecretary Zeno Ronald Abenoja says, “This is manageable.”

“Mainly because, for instance, the upward adjustment to monetary policy has resulted in a fairly sluggish adjustment to fiscal policy. The domestic sector is still receiving support, which includes expenditure on infrastructure. Its share of GDP from the previous year was 5.8%. It was also 5.8% before that, he continued.

According to Abenoja, the government’s 6 to 7 percent growth projection for this year already accounts for the impact of the BSP’s tighter monetary policy.

“The target of at least 6 (percent) up to 7 percent takes into account the impact of all these previous monetary policy adjustments,” he explained.

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