The lagged impact of monetary policy adjustments in 2023 will continue to weigh on the economy, with growth likely falling short of government targets again.

The central bank, the Bangko Sentral ng Pilipinas (BSP), forecasts the country’s economy to remain intact in the medium term but may operate marginally under its potential, according to the latest Monetary Policy Report.

The BSP said GDP growth could settle below the 6.5% to 7.5% target set by the Cabinet-level Development Budget Coordination Committee for this year and perhaps until 2025, The Philippine Star reports.

“The projected GDP growth path is supported by the improved global growth outlook and decline in global crude oil prices, tempered in part by the lagged impact of the policy rate adjustments,” stated the BSP.

Furthermore, the central bank forecasts that the output gap will be slightly negative in 2024 and 2025 as the effect of past policy interest rate adjustments takes hold on the country’s economy.

Up to now, the BSP has hiked its key policy rates by an aggregate of 450 basis points to reach a 16-year top of 6.5%.

“A projected slowdown in global growth owing in part to tight monetary conditions across countries could likewise dampen aggregate demand,” the BSP said.

Moreover, the bank said the output gap could still gain support from higher consumption due to increased wages and the higher value of remittances due to the depreciation of the Peso.

Potential output will also likely be sustained by improved labour market conditions and ongoing investment growth.

“Productivity growth is also seen to continue owing largely to generally robust economic activity and robust infrastructure spending,” the central bank stated.

The BSP forecasts that the impact of its policy rate adjustments will likely hit a peak in 2024.