By Katherine K. Chan
The Philippines’ weak economic growth gives the Bangko Sentral ng Pilipinas (BSP) room to take a less aggressive approach to monetary tightening, but Governor Eli M. Remolona, Jr. said the central bank still needs clearer evidence that inflation is moving sustainably lower before it could relax.
“Weaker growth that we’re seeing means we can be less aggressive in trying to tame inflation,” he said at the Economic Journalists Association of the Philippines’ Economic Forum on Friday.
His remarks suggest the BSP may have greater scope to weigh growth risks in its policy decisions after the economy expanded at the slowest outside the COVID-19 pandemic in more than 16 years.
The economy grew 2.3% in the second quarter from a year earlier, slowing from 2.8% in the first quarter and 5.4% a year earlier. It was the fourth straight quarter of slower growth.
Mr. Remolona described the result as “disappointing and surprising,” although he said the economy would have grown 3.2% based on the BSP’s estimate based on second-quarter 2025 gross domestic product.
The weak performance came as declining public construction weighed on investment and elevated prices constrained household spending.
The slowdown also reflected lingering effects of last year’s flood-control corruption scandal and the more than five-month-old Iran war, Mr. Remolona said.
The weak growth could reduce the need for further aggressive rate increases, particularly if inflation expectations remain contained.
However, Mr. Remolona said the central bank is not yet ready to ease its inflation fight.
“With the growth numbers, and with the inflation numbers, I think we need a more convincing downward trend for inflation before we can relax,” he said.
Inflation eased to 6.2% in July from 6.4% in June, marking its third straight month of easing. But it remained well above the BSP’s 3% target, with the year-to-date average hitting 5%.
Mr. Remolona said the latest inflation data also showed the need for vigilance against unpredictable price shocks.
Still, inflation expectations remain relatively well-anchored, giving the central bank some reassurance as it weighs growth and price stability risks.
The median forecast of 24 external forecasters surveyed by the BSP as of July 23 showed inflation easing to 5.4% over the next 12 months, from 6% in the June survey.
Inflation is expected to average 4% over the next two years, slightly lower than the previous 4.1% forecast, and 3.3% over the next 36 months, compared with the previous 3.4% projection.
“That’s the reassuring part — that those expectations are pretty anchored,” Mr. Remolona said.
The combination of weak growth and easing inflation expectations could give the BSP more flexibility in calibrating its next policy moves, although the governor’s comments indicate that a sustained decline in inflation is needed for a significant shift.
The Monetary Board has raised its benchmark policy rate by 50 basis points since it began tightening in April, bringing the key rate to 4.75%.
The BSP has three remaining policy reviews this year, scheduled for Aug. 27, Oct. 22 and Dec. 17.
