Rate hikes cut into economic growth — DOF

The series of rate hikes delivered by the Bangko Sentral ng Pilipinas (BSP) last year slashed the country’s economic growth by 0.2 percentage point in 2018 and 0.4 percentage point in the first half of 2019, according to the Department of Finance (DOF).

In an interview, Finance Undersecretary and chief economist Gil Beltran said the 175-basis point increase in policy rates last year pulled down gross domestic product (GDP) growth in the latter end of 2018 and the earlier half of 2019.

“Last year, it was 0.2 (percentage point). This year, it’s about 0.4 (percentage point) so far,” he said.

Economic growth slowed down to 5.5 percent in the second quarter from 5.6 percent in the previous quarter and 6.2 percent in the second quarter of 2018.

Last year, the Monetary Board lifted rates by 175 basis points to keep inflation expectations well-anchored after accelerating to 5.2 percent from 2.9 percent in 2017.

Beltran said that there is usually a two-quarter delay before the impact of the interest rate hike to the economy can be felt.

However, since the BSP has delivered three rate cuts this year--25 basis points each last May 9, Aug. 8, and Sept. 26 – Beltran said its impact could already start to wind down.

Meanwhile, Finance Secretary Carlos Dominguez said the impact of the interest rate hike last year is less significant than the delay in the passage of the 2019 budget despite the private sector contributing 80 percent to the economy as against 20 percent from the government.

“Let’s put it this way, (it’s) 20 percent, but it’s a critical 20 percent, because it is spent on infrastructure. And infrastructure has a huge multiplier effect,” Dominguez said.

Despite the slowdown in economic growth, Dominguez is still optimistic economic growth would still hit the government’s target of six to seven percent this year, on the back of lower inflation and the expected recovery in public spending.