FURTHER monetary easing will be necessary to support economic growth, Finance Secretary Ralph G. Recto said, adding that there is a high likelihood the central bank will cut rates next month.
“Equally important, I suppose, is the reduction of interest rates. It would appear that, because inflation has been controlled in the Philippines… there is room for a rate cut in our next (meeting),” Mr. Recto, who is also a Monetary Board member, told Bloomberg in a televised interview on Wednesday.
“It’s a high probability that we could do a rate cut also for our next meeting,” he added.
The Monetary Board is set to have its next rate-setting meeting on April 10.
The central bank paused its easing cycle last month as it unexpectedly kept the key rate steady at 5.75%.
This after it reduced rates for three straight meetings late last year, for a total of 75 basis points (bps) worth of rate cuts.
Mr. Recto said there is room for up to 75 bps worth of rate reductions for this year.
“Hopefully, at the minimum 50 bps and probably 75 bps (cuts), for the year that will help propel growth, consumption and investments moving forward,” he added.
Reducing borrowing costs could add at least 0.5% growth to gross domestic product (GDP), he said.
“If we could reduce it in the next two years by 150 bps, (it would probably be) even higher. Now, during the last decade, we were growing at an average of 6.4% when rates were roughly at about 3.4% to 3.9%. (Our) policy rate is 5.75%,” the Finance chief said.
Mr. Recto said further rate cuts, coupled with support investments, could drive Philippine growth up to 7% “or even higher later on.”
For this year, Mr. Recto said the Philippines will be able to meet its growth targets.
“We’re pretty confident that we would hit at least 6% growth. The World Bank, the IMF (International Monetary Fund), and many other institutions are saying that we’re on track to 6%,” he said, citing the country’s strong macroeconomic fundamentals, low unemployment and continued investment in infrastructure.
“We have elections also right now and during elections, there’s more spending, so we’re pretty confident we hit at the very least 6% this year,” Mr. Recto added.
The government is targeting 6-8% growth from this year until 2028.
The Philippines’ GDP grew by a slower-than-expected 5.2% in the fourth quarter, bringing the full-year growth to 5.6%. This was short of the government’s revised 6-6.5% full-year target.
Despite headwinds arising from slowing global growth, Mr. Recto said the Philippine economy is mostly driven by consumption.
“So far, our BPO industry is growing. Our overseas Filipino worker remittances continue to grow. We hope that’s not affected by these headwinds as well. Tourism is improving,” he said.
The recent arrest of former President Rodrigo R. Duterte is also unlikely to dampen investor sentiment.
Asked about the chance of political unrest after his arrest, Mr. Recto replied: “We don’t see that happening. Zero.”
“That’s nothing to do with our macroeconomic fundamentals. To begin with, there was a slight reduction in the stock exchange, but very subdued, but the peso appreciated on the day that he was arrested,” he said.
“It could also mean that the international community is looking at how important the rule of law is to us, and it’s a part of governance as well.”
Mr. Duterte, who led the Philippines from 2016 to 2022, was arrested on an International Criminal Court (ICC) warrant on charges of crimes against humanity.
FISCAL POLICYMeanwhile, the Finance chief said the government is on track with fiscal consolidation efforts.
“We’re on the path. We surpass our revenue targets. Last year, we had the highest revenue-to-GDP ratio in the last 27 years. That’s very good.”
Latest data from the Treasury showed the National Government (NG) posted a P68.4-billion budget surplus in January, 22.27% lower than the P88-billion surfeit a year prior.
As of end-2024, the deficit as a share of GDP settled at 5.7%, lower than 6.2% at end-2023. The NG is looking to bring the deficit-to-GDP ratio to 5.3% this year and further to 3.7% by 2028.
The Finance department will also continue to privatize idle state assets, such as the Caliraya-Botocan-Kalayaan hydroelectric power plant.
“We’re opening up also for retail investors, because there are many government assets that are nonperforming, and it costs the government to maintain them so might as well privatize that.”
“Even small properties that are bought by the private sector or even individuals, that could create more value for the economy.”
These privatization efforts are expected to generate around P100-billion revenues. — Luisa Maria Jacinta C. Jocson
