FURTHER RATE HIKES may not be necessary to address rising consumer prices, as inflation remains driven by supply-side factors, according to National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan.

“I am not a member of the Monetary Board, and I respect their wisdom, but I think the source of inflation is more supply side and not the demand side, which requires a monetary policy cure,” Mr. Balisacan told reporters on the sidelines of the 12th Arangkada Forum on Wednesday.

This was after BSP Governor Eli M. Remolona, Jr. on Tuesday said the Monetary Board was considering an off-cycle rate hike as early as today (Thursday), amid upside risks to inflation. Its regular policy-setting meeting is scheduled for Nov. 16.

The BSP has maintained a hawkish stance in recent months, even as it kept the benchmark interest rate at a near 16-year high of 6.25% at its last four straight meetings.

Mr. Remolona earlier signaled a possible 25-bp rate hike, saying high interest rates have not affected economic growth prospects.

However, Mr. Balisacan said high interest rates could have long-term effects on the economy and discourage new investments. “That’s why we have to be very careful,” he added.

Mr. Balisacan is hopeful that October inflation would ease from the 6.1% print in September.

“I would be very surprised if rice inflation will (still) have (the same) rate that we saw in September, because the harvest season (has started),” he said. “World prices have declined a bit in the past couple of weeks, so that should have tempered the pressure for upward prices.”

Mr. Balisacan also said retail rice prices have adjusted quickly to market conditions following the lifting of the rice price ceiling earlier this month.

“With current availability of supplies and timely arrival of imports, I think that we should see less of those (price) pressures,” he said.

While global rice prices have been declining in recent weeks, prices remain elevated. The impact of the El Niño phenomenon on production is still considered an upside risk to inflation.

“At least for the Philippines, our agriculture people are telling us that there’s good production and recovery from the recent floods and typhoons. (We will) likely have a good harvest, and harvest is now ongoing, so that might reduce the pressure on domestic prices,” he said.

The NEDA chief noted that domestic oil prices are also at risk of rising again.

“We hope that these problems in the Middle East will not spill to the wider areas that could affect supply chain, particularly to the prices of oil. But so far, I think these increases will not be as (bad) hopefully,” he said.

Fuel retailers on Tuesday raised pump prices by P0.95 for gasoline and by P1.30 a liter for diesel. Year-to-date price adjustments as of Oct. 24 stood at P13.75 a liter for gasoline, P11.70 a liter for diesel and P6.24 a liter for kerosene.

But even with further rate hikes, Mr. Balisacan is optimistic that the Philippines can achieve its 6-7% gross domestic product (GDP) growth target.

“We are upbeat in the development community. The multilateral institutions are upbeat on the prospects of the Philippines for 2023 and 2024 and we want to ensure that optimism remains,” he said.

“That’s why we’re saying we have to work harder to get the investment climate as favorable as possible.”

The Philippine economy expanded by 4.3% in the second quarter, its slowest growth in over two years. For the first half, GDP averaged 5.3%, lower than the government’s 6-7% target.

However, Mr. Balisacan said inflation, government underspending and geopolitical conflicts are risks to growth prospects.

“Inflation reduces households’ purchasing power and puts upward pressure on wages and interest rates, potentially dampening investment and growth prospects. Second is public underspending, which leads to gaps or delays in implementing programs and projects,” he said.

“Geopolitical conflicts in many regions are a third factor that may result in supply bottlenecks and financial shocks,” he said.

Mr. Balisacan said that the Development Budget Coordination Committee will hold a special meeting soon, but there would be a regular meeting after the local statistics agency releases the third-quarter GDP data on Nov. 9.

“Then we should be able to examine if our assumptions are on point,” he added.

Meanwhile, Nomura Chief ASEAN (Association of Southeast Asian Nations) Economist Euben Paracuelles said the BSP may hike by 25 bps to 6.5% at its Nov. 16 meeting.

“A weakening in FX (foreign exchange) would only add to the impetus for BSP to hike and raise the risk of further hikes than in our baseline if balance of payments pressures persist due to heightened external risks,” he said in a note.

Mr. Paracuelles noted emerging shocks such as the El Niño weather event and rising oil prices amid geopolitical tensions could add risks to the inflation outlook.

“When these risks materialize, we think BSP will likely tighten further, fearing that absent a decisive response, inflation expectations could become unanchored,” he said. — Keisha B. Ta-asan