A gasoline attendant fills up a motorcycle with gasoline at a gas station in Delpan, Tondo, Manila, June 13. — PHILIPPINE STAR/ KRIZ JOHN ROSALES

“STAGFLATION” is unlikely to pose an immediate risk to the Philippine economy, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

“The BSP does not view ‘stagflation’ — an economic condition characterized by slow growth, high unemployment, and rising inflation — as an immediate risk to the Philippine economy,” he said in a statement on Thursday.

The central bank is optimistic the Philippine economy’s recovery will be sustained, Mr. Diokno said, citing the 8.3% gross domestic product (GDP) growth in the first quarter.

He noted the steady rise in credit activity, ample domestic liquidity, improved jobs market, and higher foreign direct investments will help boost the economy’s rebound.

Economic managers are targeting a 7-8% GDP growth this year.

However, inflation quickened to 5.4% in May, the highest in three and a half years and above the BSP’s 2-4% target range.

The BSP last month raised its average inflation estimate to 4.6% this year, higher than the previous estimate of 4.3%.

“While domestic inflation is seen to remain elevated in the near term, as a result of supply-side factors linked to volatile global commodity prices, inflation is expected to revert to the government’s target range of 2-4% by 2023. In the meantime, the balance of risks to the inflation outlook now leans toward the upside for both 2022 and 2023,” Mr. Diokno said.

The central bank repeated its support for “urgent and coordinated efforts” of government agencies to ensure there is enough domestic food supply, as well as direct and targeted interventions for vulnerable sectors.

“The BSP will remain vigilant over emerging price and output conditions and will undertake necessary action to ensure that monetary policy settings remain appropriately calibrated, consistent with the BSP’s price and financial stability mandates,” Mr. Diokno said.

The BSP has already signaled another policy rate hike at its June 23 policy meeting.

The Monetary Board kicked off its tightening cycle by raising the policy rate, the yield on the BSP’s overnight reverse repurchase facility, by 25 basis points (bps) to 2.25% during its May 19 meeting to temper rising inflation. Interest rates on the overnight deposit and lending facilities were also hiked to 1.75% and 2.75%, respectively.

This was the first increase in borrowing costs since 2018 and followed cuts worth 200 bps in 2020 as the BSP moved to support the economy amid the coronavirus pandemic.

The World Bank earlier this month warned of the rising risk of stagflation, an economic condition characterized by weak growth and high inflation that was last seen in the 1970s.

“Just over two years after COVID-19 (coronavirus disease 2019) caused the deepest global recession since World War II, the world economy is again in danger,” World Bank Group President David Malpass said in the Global Economic Prospects report released earlier this month.

“This time it is facing high inflation and slow growth at the same time. Even if a global recession is averted, the pain of stagflation could persist for several years — unless major supply increases are set in motion.”

Mr. Malpass noted that global growth will likely be subdued throughout the decade due to weak investment, and there is a risk that inflation will remain higher for longer than anticipated.

The World Bank estimated global growth at 2.1% in 2022 and 1.5% in 2023, reflecting the impact of the pandemic and the Russia-Ukraine war. 

The multilateral lender expects the Philippine economy to grow by 5.7% for 2022, and 5.6% on average in 2023 and 2024.