To support economy
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) decided yesterday to lower policy rates further by 25 basis points (bps) as inflation remains within target and economic growth slows.
In a press conference following the Monetary Board’s last policy review this year, BSP Governor Eli Remolona Jr. said the policy-making body decided to lower the target reverse repurchase rate to 5.75 percent from six percent previously.
Likewise, the overnight deposit and lending rates were reduced at 5.25 percent and 6.25 percent, respectively. The central bank has delivered a total of 75-bps rate cuts since August.
Remolona said inflation is projected to stay within the two to four percent target range over the policy horizon. However, he said downside risks in the external environment could materialize and temper economic activity and market sentiment.
“On balance, the within-target inflation outlook and well-anchored inflation expectations continue to support the BSP’s shift toward less restrictive monetary policy,” Remolona said.
“Nonetheless, monetary authorities will continue to closely monitor the emerging upside risks to inflation, notably geopolitical factors,” he said.
The BSP chief said the balance of risks to the inflation outlook continues to lean to the upside. This is mainly due to possible upward adjustments in transport fares and electricity rates. But lower import tariffs on rice remains the main downside risk to inflation.
The Monetary Board raised its risk-adjusted inflation forecast to 3.4 percent in 2025 from the 3.3 percent given in the previous meeting in October. For 2026, the risk-adjusted forecast is unchanged at 3.7 percent.
Headline inflation quickened to 2.5 percent in November from 2.3 percent in October, marking its second straight month of increase. This brought the average inflation from January to November to 3.2 percent.
“Looking ahead, the Monetary Board will maintain a measured approach to monetary policy easing to ensure price stability conducive to sustainable economic growth and employment,” Remolona said.
Meanwhile, Remolona said there could be fewer rate cuts next year as the central bank is ready to adopt a more cautious approach in adjusting monetary policy given the upside risks to inflation.
“At this stage, given our forecast and given the data, (cutting) 100 basis points (next year) may be a bit much. I think we will maintain an easing posture, but not to the extent of cutting by 100 bps. We will have to see what the data says,” he said.
But while cutting 100 bps may be too much, not cutting at all would also be too little, the BSP chief added.
Asked about the impact of the total 75-bps rate cuts to the economy next year, Remolona said monetary policy is still tight even with the easing cycle so far.
“Even with the 75 bps, we’re still somewhat on the tight side. That for us is a kind of insurance. The reason we’re cutting in baby steps is because we’re not absolutely sure about inflation. We still worry that inflation might start to rise again,” he said.
On the other hand, while the BSP does not have a target level for the exchange rate, the central bank is concerned about the pass-through effect of the peso’s depreciation against the dollar to inflation.
“At some point, if the peso keeps depreciating, it begins to have an effect on inflation. For now, the effect has been modest so it hasn’t been a big factor in our discussions,” Remolona said.
Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco said a total of 100-bps rate cuts is possible next year as inflation is expected to cool down to 2.4 percent in 2025 from an estimated 3.2 percent in 2024.
The rate cuts would also support lagging economic growth, as gross domestic product (GDP) plunged to 5.2 percent in the third quarter from 6.4 percent in the previous quarter.
“In our view, the general slowdown in growth is far from over and we expect the annual average to slip further in 2025 to 5.2 percent from an estimated 5.4 percent this year,” Chanco said.