ANZ: BSP’s inflation fight threatens growth outlook

MANILA, Philippines – The Bangko Sentral ng Pilipinas’ (BSP) campaign to tame inflation through higher interest rates is likely to exact a further toll on economic growth, according to ANZ Research, which warned that the Philippines remains among the region’s more vulnerable economies despite a brighter outlook for much of Asia.

In a quarterly report released on Tuesday, ANZ said it had become more optimistic about the region as a technology-driven investment cycle offsets the economic drag from the war in the Middle East. But it struck a more cautious tone on the Philippines and Indonesia, citing weak growth prospects and fragile external positions.

READ: BSP hikes policy rate anew by 25bps to 4.75%

Article continues after this advertisement

The Philippines’ outlook is more constrained by weak household and business confidence, elevated inflation and higher interest rates, the bank said. It added that public spending likely bottomed in the first quarter, but a material recovery is unlikely until governance issues surrounding infrastructure projects are fully resolved.

FEATURED STORIES

BUSINESS

BUSINESS

BUSINESS

ANZ noted that the Philippine central bank remains focused on curbing inflation even as the economy expanded by just 2.8 percent in the first quarter. It expects policymakers to deliver two more quarter-point rate increases, bringing total monetary tightening from trough to peak to 100 basis points.

“So far, inflation has exceeded official targets only in the Philippines, South Korea and Vietnam. However, an uptrend has set in that is likely to intensify in the coming months,” ANZ said.

“Monetary tightening will further impede growth,” it added.

Consumer prices rose 6.8 percent in May from a year earlier, slowing from April’s 7.2 percent pace and coming in below economists’ forecasts. Still, inflation remained above the central bank’s 2 percent to 4 percent target range for a third straight month.

Article continues after this advertisement

The BSP has said it would “take necessary actions” to ensure inflation returns to its 3-percent target. Last week, the Monetary Board raised its benchmark interest rate by a quarter percentage point to 4.75 percent, extending a tightening cycle that has now delivered a cumulative 50 basis points of increases.

Zooming out, ANZ said both fiscal and monetary policies in Asia are being aligned to address inflation. On the fiscal side, most governments have expanded energy subsidies and broader welfare support.

Article continues after this advertisement

But ANZ said the Philippines stood out with “negligible” fiscal support, reflecting “tight fiscal constraints and legal rigidities in fuel and utility pricing.”

READ: DBCC cuts PH 2026 growth target to 3.5-4.5%

Already, the Marcos administration has slashed its economic growth target to 3.5 percent to 4.5 percent for 2026—from the previous goal of 5-percent to 6-percent—as the Philippines confronts multiple headwinds at home and abroad.

Your subscription could not be saved. Please try again.

Your subscription has been successful.

“Indonesia and the Philippines are unique in the current tightening cycle as their monetary policy dynamics are not backed by strong growth,” it added. INQ