MANILA, Philippines — Following a sharper-than-expected slowdown in February inflation, the Bangko Sentral ng Pilipinas (BSP) is maintaining a cautious approach to monetary easing as any interest rate cuts this year will likely be done in “baby steps.”
In a forum hosted by the Tuesday Club at the EDSA Shangri-La Hotel, BSP Governor Eli Remolona Jr. said that inflation last month fell outside the central bank’s forecast range on the lower side.
“We did miss the inflation number on the low side. If we’re going to miss it, that’s the way to miss it, right? So we’re happy about that miss,” he said, adding that the BSP would look at the March inflation data before the next policy meeting.
The Monetary Board’s next policy meeting has been rescheduled to April 10, pushed back from its original April 3 date. This will allow the BSP to consider the March inflation data, which is set for release on April 5.
While the BSP remains in an easing cycle, Remolona also said that the central bank has yet to determine the magnitude of rate cuts for the year.
He outlined three possible scenarios: a baseline scenario with a measured pace of cuts, a hawkish scenario with fewer cuts and a dovish scenario with more aggressive easing.
When asked if an April rate cut is still on the table, the governor confirmed that it remains a possibility.
For now, he said the BSP prefers to ease in “baby steps,” cutting by 25 basis points at a time. However, should economic conditions deteriorate significantly, Remolona said that an aggressive 50-basis-point cut or more could be considered.
“If things look much worse than we thought – a so-called hard landing – then we could cut by 50 basis points or even more,” he said.
However, the BSP chief dismissed speculation about an aggressive 100-basis-point cut for the year, stating that current conditions do not yet warrant such a move.
Headline inflation fell to 2.1 percent in February from 2.9 percent in January, a sharper decline than market expectations and the BSP’s own forecast range of 2.2 to three percent.
The Monetary Board opted to keep borrowing costs unchanged last month, keeping its key interest rate at 5.75 percent. This was after it slashed policy rates by a total of 75 basis points in 2024.
The BSP has also signaled openness to further reduce banks’ reserve requirement ratio (RRR), despite already implementing a cut earlier this year.
Remolona said that even a five-percent RRR for big banks is still “too high” in his view, but noted that any further reductions would be a collective decision of the seven-member Monetary Board.
“For me, five percent is still high. But I’m just one vote,” he said, hinting at the potential for additional cuts within the year.
The BSP has also factored in the upcoming election campaign, which is expected to inject a surge of liquidity into the economy.
Meanwhile, Remolona reaffirmed the BSP’s watchful stance on the peso, noting that while exchange rate fluctuations are normal, excessive weakening could be inflationary.
“We always worry about the exchange rate, but not because we want the peso to stay low or high. We monitor it because of the possible inflation consequences,” he said.
Remolona also pointed to global trade uncertainties as a key consideration in policy decisions. He recently attended a meeting with the Bank for International Settlements, where central banks worldwide expressed concerns over economic uncertainty.