Despite market concerns that the global economic recovery will slow down, the Philippine economy accelerated in the first quarter of this year, reaching its fastest growth rate in three years, putting pressure on the central bank to raise interest rates.
The National Statistical Coordination Board announced today in Manila that the growth rate reached 1.8% over the three months since December last year, with the gross domestic product rising 7.3% compared to the same period last year. This is higher than the median forecast of 4.4% from 15 economists surveyed by Bloomberg.
Asian economies are growing faster than other regions of the world, and inflation has emerged, prompting central banks in the region to begin raising interest rates. Nevertheless, Bangko Sentral ng Pilipinas Governor Amando Tetangco stated yesterday that they will "closely monitor" the impact of the European debt crisis and the escalating tensions between North and South Korea at next week's policy meeting.
"The positive economic activity in the last quarter does not necessarily signal sustained economic growth," said Roland Avante, Chief Financial Officer of Sterling Bank of Asia in Manila, before the GDP report was released. "It is still too early to raise the benchmark interest rate, as uncertainties remain regarding the debt issues in Europe."
Diwa Guinigundo, Deputy Governor of the Philippine central bank, said on May 12 that the next meeting on June 3 will be a "balanced" move, as policymakers attempt to curb inflation without stifling economic growth. This year, the Philippines has cut back on banks' lending plans while planning to keep the benchmark interest rate at a record low of 4%.
The inflation rate in the Philippines reached 4.4% in April, the fastest growth since December last year, due to rising oil and food prices caused by the global economic recovery. Tetangco estimated yesterday that consumer price levels could rise to 5.1% in May, which would be the fastest growth in 14 months.
Leading the presidential election voting this month, Senator Benigno Aquino has promised to create jobs and attract investment to increase income and stimulate economic growth.
"This will be a very urgent balancing act to decide whether to adjust the policy interest rate or readjust the reserve requirement," Guinigundo stated this month. "If we believe that the global and domestic economic recovery remains fragile and the inflation outlook is still favorable, we may not implement either measure."
Among the 11 economists participating in the Bloomberg survey, four predict that the Philippine central bank will raise the benchmark interest rate to 4.25% this quarter, while others expect an increase in the third quarter.
