Tariff Reduction in Rice Can Help Ease Inflation, Boost Economic Growth in the Philippines

In a briefing at the Shangri-la at The Fort in Bonifacio Global City, HSBC Global Research ASEAN economist Aris Dacanay stated that the tariff cut on rice will not only help ease inflation but also boost economic growth if implemented timely and successfully.

He added that reducing the rice tariff to 15% from the current 35% until 2028 will help unleash 2% of household income. This in turn will support household consumption and boost overall growth.

According to Dcanay, the tariff cut rate has the potential to boost growth by a maximum of 1.4 percentage points (ppt) under a best-case scenario.

“Consumption is 70% of GDP (gross domestic product). So that’s basically your household budget. That’s how much people spend. People spend 10% of their budgets on rice. If you reduce rice prices by 20%, you’re basically saving 2% of your household budget,” he said.

“So let’s say if all the unleashed basically household savings or freed up household savings goes to buy goods that are domestically produced and all of them, basically all of them are spent, nothing is saved, then the potential, the highest, the maximum growth it could deliver is 1.4 ppt,” Dacanay added.

HSCB Global Research expects economic growth to hit 5.8% and is seen to rise further to 6.1% in 2025. However, Dacanay explained that the forecast does not include the impact of the tariff rate cut. “There’s no tariff rate cut yet. It [economic growth] could be higher. There’s an upside risk,” he said.

For inflation, HSBC Global Research that once the tariff rate cut is fully implemented, inflation could ease by 1.8 ppt. Based on their current projection that doesn’t take into account the impact of the tariff rate cut, Dacanay said that the headline inflation will likely range between 4 and 4.5 percent until July this year and will return within target by August.

Inflation is projected to settle at 3.6% for the full year 2024 and will slightly go up to 3.8% in 2025.

“But, let’s say, the rice tariff rate cut happens tomorrow or happens within June, I do think that’s a big downside risk to the inflation outlook, and perhaps inflation will not breach the target,” said Dacanay. He further added, “If the policy transmission of the tariff rate cut is really fast, it was very fast during 2019 when the tariff rate cut happened. If we apply the same logic, then that’s a big downside risk to the inflation outlook.”

HSBC Global Research believes that if the new tariff schedule is implemented by July, inflation could decrease quickly and reach the 2.0% level and that it could even go lower if global oil prices ease at the same time. Dacanay said that with the big reduction in inflation, the Bangko Sentral ng Pilipinas will have an opportunity to cut interest rates faster than the Fed.