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After considering the effects of the global economic slowdown, the International Monetary Fund (IMF) reduced its 2022 growth prediction for the Philippines from 6.7 percent to 6.5 percent.

Mission chief Cheng Hoon Lim stated that the growth prediction for 2023 is 5 percent, which is the same as last July under the World Economic Outlook (WEO) update, in a briefing on Monday following the debt lender’s annual Article IV Consultation.

“The Philippines are not cut off from the outside world. The US and China are its main trading partners, and if these nations slow down, so will (the) Philippines. And that’s the fundamental reason we downgraded our growth forecasts to 6.5 percent for this year and 5 percent for next,” the official said.

According to Lim, since October of last year, the IMF has lowered its worldwide growth prediction for the world economy downward by two percentage points, from 4.9 percent to 3.2 percent for 2022.

Because of “extremely robust local demand,” she claimed, the modification to the Philippines’ growth prediction is not as significant as the one to the prognosis for the world economy.

“There are major negative risks,” Lim said of the IMF’s growth projection for the domestic sector. “Policy tradeoffs between output and inflation would become more acute.”

The increase of coronavirus disease 2019 (Covid-19) infections, wider-than-anticipated shifts in monetary policy globally, a slowing world economy, high inflation rates, and natural disasters are downside threats to growth.

However, it is anticipated that the impact of the ongoing conflict between Russia and Ukraine and efforts to deal with the high inflation rate elsewhere will offset these.

About the future, she continued, “maintaining the economic recovery will require a focus on measures to handle inflationary risks, improve fiscal and financial resilience to adverse shocks, and successfully implement reforms to lessen pandemic scarring and promote productivity growth.”

According to Lim, the Philippine peso’s depreciation is consistent with other currencies as the Federal Reserve raises its benchmark interest rates to control the US’s four-decade-high inflation rate.

She continued, ” nobody is sure how much interest rates will rise, “but the peso will be impacted by additional monetary tightening in the US.”

After beginning the year at 51, the peso currently trades at 58 against the US dollar.

The Bangko Sentral ng Pilipinas (BSP) should give “clear communication concerning inflation,” according to one of the policy suggestions made after the Article IV Consultation, which took place from September 12 to 26.

The BSP’s forward-looking policy aims, it was remarked, “may assist minimize uncertainty and increase policy transmission.”

Lim declined to predict how many additional increases the Monetary Board (MB), which sets policy for the BSP, will settle on this year.

She claimed that anytime market conditions are chaotic, there is an urgent need for foreign exchange intervention (FSI).

“Now, when and how much should that happen? We defer to BSP’s wise judgment in this situation. She continued that they can choose when and how much to intervene.

Due to the increase in domestic inflation and to close the interest rate gap with the US, the BSP has raised its main rates by 225 basis points since last May.

Markets anticipate that the BSP will keep raising rates as long as the Fed keeps tightening.

In response, the monetary authorities of the Philippines promised to take “follow-through action to stabilize inflation expectations and prevent price pressures from becoming more entrenched.”

The BSP stated in a statement following the MB’s rate-setting meeting on September 22 that “the domestic economy can handle a fair tightening of the monetary policy stance, as demand has usually maintained solid due to improving employment outturns and adequate liquidity and credit.”

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