The Philippine central bank will be under pressure to raise interest rates when it meets in August, an economist told CNBC on Tuesday.
The trade deficit has increased due to double-digit spending on capital machinery and raw materials. Nicholas Mapa, senior economist covering the Philippines at financial company ING, said that it would put more pressure on the peso.
The central bank will be under pressure to raise rates if the weakness continues.
Mapa said ING expects inflation to accelerate to 7.2% by the fourth quarter. The central bank is finally sounding a little more hawkish, he said.
The central bank of the Philippines has a long wait until they can start hiking policy rates again. He doesn't think there will be a rate hike before the central bank's meeting.
The economist said inflation in the Philippines is staying because of rising wages and transportation costs.
If oil prices don't fall in the second half of the year, he predicts inflation will stay high. The Philippines imports all of its crude oil, which has gone up in price recently. The widening trade deficit was caused by the crude oil import bill, according to Mapa.
The economist said that the new government of Ferdinand Marcos Jr. lowered its growth target to 6.5%, which indicates that Manila accepts higher inflation will hurt growth in the second half of the year.
There is a countervailing force that the economy is reopening so we are likely to see more capital machinery coming in as well as raw materials as construction activity comes back to life.
He predicted that the Philippines would see very strong growth in the first half of the year, with first quarter growth at 8.3%, but that the second half would be affected by inflation.
The fiscal picture won't contribute to a good number in the second half of the year.
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