The government must do more to tackle stubborn inflation, as a policy rate hike alone could stifle growth, the heads of the two business chambers said.
“High interest rates are not good for an emerging economy,” John Tria, president of the Davao City Chamber of Commerce and Industry, said in a roundtable interview with The Manila Times President and CEO Dante Francis “Clink” Ang 2nd on Wednesday.
“[T]The government should really address the issue of inflation… [as it is] very bad for investment,” he added.
Meanwhile, the president of the Cebu Chamber of Commerce and Industry, Charles Kenneth Koh, stated that “the inflation we are experiencing is not ordinary inflation … it is not caused by consumption.”
“We don’t see excess consumption or excess economic activity,” he added.
Rising interest rates help curb demand for goods and services. However, tightening too much can be detrimental to growth.
Key interest rates have been raised by a total of 400 basis points since last year as inflation surged after Russia’s invasion of Ukraine. The discount rate of Bangko Sentral ng Pilipinas (BSP) is currently 6.0 percent, the highest in almost 15 years.
Inflation was expected to peak in December but beat expectations in January to a new 14-year high of 8.7 percent. BSP said it could rise to 9.3% in February, meaning another rate hike is likely to be decided later this month.
The BSP, in its latest monetary policy report, said that inflation is expected to remain high due to “a combination of persistent supply constraints and emerging demand pressures.”
The subsequent monetary policy action will help “steer and prevent adverse shifts in inflation expectations and thereby also contain additional spillovers.”
While the monetary authorities will take “all necessary policy measures”, the BSP pointed to the need for “timely implementation of non-monetary government interventions to mitigate the impact of persistent supply pressure on commodity prices”.
During the roundtable, Koh opined that the rate hike was more about maintaining a constant spread with US interest rates “to contain the peso’s rise.”
He cited unemployment as a problem that needs to be addressed, while Tria indicated that action must be taken against high fuel prices.