Remolona sees more rate cuts in Q4

MANILA, Philippines — There is a possibility of two 25-basis-point rate cuts in the final quarter of the year, as inflation  is expected to ease further in September, according to Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr.

On the sidelines of a forum at the Asian Development Bank yesterday, Remolona said the Monetary Board could further ease policy this year by cutting 25 basis points each on Oct. 17 and Dec. 19.

“In theory, we have a policy meeting in October and December. So, 25 basis points and 25 basis points – that’s possible, in principle,” the BSP chief said.

Remolona also said it is possible that inflation would be lower in September than the 3.3 percent in August. Core inflation may also stay below the three percent level this month.

However, the Monetary Board will remain focused on the longer-term outlook on the country’s inflation.

“We have to look at the numbers. It’s not the last number that decides (what we will do). The last number that we get – the September number that will be released next week – that feeds into our projections,” Remolona said.

“So, what we care about is the projection for one year from now, because the impact of monetary policy is slow,” he said.

On Tuesday, Finance Secretary Ralph Recto said inflation would likely ease to 2.5 percent in September, giving the BSP more room to cut rates by 50 basis points on Oct. 17.

However, Remolona said there could be a risk of a hard landing if the BSP decides to cut by 50 basis points in one meeting. A hard landing refers to a marked slowdown in the economy.

Last month, the Monetary Board cut borrowing costs by 25 basis points to 6.25 percent from the over 17-year high of 6.50 percent. This was also the first time the Philippine central bank reduced rates in nearly four years.

Prior to the cut, the BSP kept its policy rate steady for six straight meetings since November 2023. From May 2022 to October 2023, it hiked rates by 450 basis points to tame inflation and stabilize the peso.

Meanwhile, Remolona said the BSP and the Bankers Association of the Philippines would announce on Sept. 30 some enhancements to short-term benchmarks via the peso interest rate swaps and the government securities repurchase agreements.

These enhancements are part of continued efforts to deepen the capital market and improve the transmission of monetary policy.