Economic reforms support inflation easing

The Philippine economy is poised to benefit from ongoing economic reforms and favorable trends, as inflation continues to ease and growth momentum strengthens.

In September, the country’s inflation rate slowed to 1.9%, a significant drop from August’s 3.3%, marking the lowest level since May 2020’s 1.6%. This brought the average inflation rate for the first nine months of the year to 3.4%, well within the government’s target range of 3%-4%.

Rizal Commercial Banking Corporation (RCBC) Chief Economist Michael Ricafort forecasts further deceleration in inflation over the coming months. He highlighted that sustained easing in price pressures could justify future reductions in key policy interest rates, paving the way for faster economic growth.

The Bangko Sentral ng Pilipinas (BSP) supported this outlook during its Monetary Board meeting on October 15, when it reduced the reverse repurchase (RRP) rate by 25 basis points to 6%. The BSP noted that inflation remains manageable, with this year’s average inflation projected at 3.1%.

Government initiatives, such as Executive Order No. 62, which cut rice tariffs to 15%, and support programs for agriculture—including seed distribution and vaccines to combat African swine fever—have bolstered food supply and helped mitigate inflationary pressures.

The Monetary Board also highlighted that rice inflation significantly eased, thanks to a stable supply supported by rice imports.

Ricafort emphasized the resilience of the Philippine economy, driven by robust business activity and job creation post-pandemic. He also pointed to key reforms designed to attract foreign investment, including amendments to the Public Services Act, Retail Trade Liberalization Act, and Foreign Investment Act, alongside the recently signed CREATE-MORE law, which enhances the competitiveness and predictability of the country’s tax incentives.

“These reforms strengthen investor confidence, generate employment, and open up new business opportunities, ensuring sustained recovery and economic expansion,” Ricafort said.

While the outlook is positive, Ricafort acknowledged potential risks, including the effects of La Niña, geopolitical tensions, and protectionist policies in the United States.

The Philippine economy grew by 6.3% in the second quarter of 2024, up from 5.8% in the previous quarter and 4.3% a year earlier. Average growth for the first half of the year stood at 6%, in line with the government’s 6%-7% growth target for 2024.

Ricafort projected GDP growth of 5.5%-6.5% in 2024 and beyond, citing favorable demographics, infrastructure investments, and the recovery of industries like tourism as key drivers. He also noted the potential for accelerated government spending on infrastructure projects ahead of the 2025 midterm elections, which could further boost growth.

The Philippines’ demographic advantage, with a working-age population exceeding 113 million, remains a significant asset. Combined with fiscal measures and economic programs, this positions the country as one of Asia’s fastest-growing economies.