MANILA, Philippines — Metropolitan Bank & Trust Co. (Metrobank) has lowered its gross domestic product (GDP) growth forecast for the Philippines to 5.7 percent this year, citing tight monetary policy that could hinder investments into the country.
In its latest report, Metrobank Research said they revised their forecasts as a result of their latest analysis of market shifts, recent developments and assessment of policy direction.
“GDP is expected to hit 5.7 percent in 2024 year-on-year, and additional efforts will be needed to reach the government’s target of six to seven percent,” it said.
The forecast is lower than the six percent estimate the bank gave previously. It is also below the government’s six to seven percent target for 2024.
The bank said that the Philippine economy is expected to grow at a slower pace as investments will continue to be constrained by the tight monetary policy environment.
The cumulative 450 basis points of rate hikes delivered by the Bangko Sentral ng Pilipinas (BSP) from May 2022 to October 2023 is making it harder for businesses to invest and expand, it said.
“At the same time, many Filipinos are not spending as much as before. Some households have also incurred more debt,” the bank said.
“Despite these challenges, the economy continues to move forward, just at a more measured pace than initially hoped,” it said.
The Philippines expanded by just 5.7 percent in the first quarter. This is slower than 6.4 percent in the same period a year ago but higher than 5.5 percent a quarter prior.
Metrobank noted that recent signals from BSP Governor Eli Remolona Jr. show the central bank’s urgency to lower interest rates as it is considering cutting borrowing costs next month.
“This move suggests that the central bank believes prices are stable and that the economy needs some help to grow faster,” Metrobank said.
However, future policy decisions could depend on what the US Federal Reserve does with its own interest rates. This will prompt the BSP to closely monitor the timing of rate cuts from the Fed as this could affect the Philippine economy and the peso.
“We believe the BSP might lower rates twice this year, with a possible third cut in December if prices remain stable and the financial markets stay calm,” the bank said.
If realized, this would bring the BSP’s key policy rate down to 5.75 percent by end-2024 from the current 6.5 percent.
Metrobank Research also projects inflation to hit 3.3 percent this year, significantly lower than the six percent average in 2023.
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