BSP surprises market as it holds off rate cut

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) opted to keep borrowing costs unchanged yesterday amid lingering global uncertainties, marking the first time it held interest rates steady after three straight rate cuts last year.

In a briefing following the Monetary Board’s first policy review this year, the BSP kept its target reverse repurchase rate at 5.75 percent. Interest rates on the overnight deposit and lending facilities remain unchanged at 5.25 and 6.25 percent.

Market watchers widely expected the BSP to cut policy rates by 25 basis points.

BSP Governor Eli Remolona Jr. said in a press conference that the central bank would typically continue cutting rates but stressed that heightened uncertainty in global trade policies made the BSP more cautious in its approach.

“Before deciding on the timing and magnitude of further reductions in the policy interest rate, the Monetary Board deems it prudent to await further assessments of the impact of global policy uncertainty and the potential effects of the actual policies,” Remolona said.

According to the BSP chief, the latest inflation forecasts are not materially different from the previous forecasts in December 2024. Inflation expectations also remain within the two to four percent target range.

The BSP slightly increased the risk-adjusted inflation forecast to 3.5 percent from 3.4 percent for 2025. But it kept its forecast for 2026 at 3.7 percent.

BSP Deputy Governor Francisco Dakila Jr. said the risks to the inflation outlook have become broadly balanced for 2025 and 2026.

However, upside pressures are seen to come from the utilities sector. The impact of lower import tariffs on rice remains the main downside risk to inflation.

Headline inflation stood at 2.9 percent in January, unchanged from a month ago and within the BSP’s month-ahead forecast range of 2.5 to 3.3 percent. However, this is slightly higher than the 2.8 percent clip recorded in the same month in 2024.

“Looking ahead, the BSP anticipates continuing its measured shift to less restrictive monetary policy settings, even as previous policy adjustments further work their way through the economy,” Remolona said.

“The BSP will remain data-dependent in ensuring price stability conducive to sustainable economic growth and employment,” he said.

Remolona also said that the BSP needs time to recalibrate its models, as the current economic environment presents unique challenges.

“We are facing an unusual phenomenon in terms of the uncertainty of the policies that we put in place. We have to redo our models and try to capture the uncertainty itself as an effect,” he said.

Despite the pause, the BSP chief reaffirmed that the central bank remains in an easing cycle and is not considering rate hikes.

“We’re still in the easing cycle. We’re not thinking about raising rates. For now, it’s a question of when we actually ease. I think we have five more meetings this year. In some of those meetings, we will probably ease,” Remolona said.

Asked whether the BSP is still considering a cut in banks’ reserve requirement ratio, he responded, “Yes.”

Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco said the central bank’s surprise pause “won’t last long” as economic growth remained sluggish while inflation continued to be under control.

“The BSP still has ample policy space for rate reductions without losing the credibility of its less restrictive posture,” Chanco said.

“All told, we’re sticking to our baseline view and expect to see 100 basis points in additional cuts before year-end,” Chanco added.

Gareth Leather, senior Asia economist at Capital Economics, said the Philippines would likely be hit by a 10-percent universal tariff from the US, but the impact on the currency, inflation and growth would be small.

“Provided inflation remains under control, then further cuts are likely over the coming months. Meanwhile, the economy continued to grow strongly in the final quarter of last year, which suggests there is little need for aggressive rate cuts,” Leather said.

Capital Economics likewise expects a total of 100 basis points worth of cuts in 2025. The Monetary Board will have its next policy review on April 3.