By Luisa Maria Jacinta C. Jocson, Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) lowered its key rate for a 3rd straight meeting on Thursday but signaled the opportunity of fewer cuts in 2025.
The Monetary Board on Wednesday reduced the goal reverse repurchase rate by 25 basis points (bps), bringing the important thing rate to five.75% from 6%.
This was also in keeping with the expectations of 13 out of 16 analysts surveyed in a BusinessWorld poll last week.
Rates on the overnight deposit and lending facilities were also lowered to five.25% and 6.25%, respectively.
The central bank has now slashed rates by a complete of 75 bps this 12 months because it began its easing cycle in August.
“Looking ahead, the Monetary Board will maintain a measured approach to monetary policy easing to make sure price stability conducive to sustainable economic growth and employment,” BSP Governor Eli M. Remolona, Jr. said.
He said that inflation is projected to remain throughout the 2-4% goal range over the policy horizon.
“On balance, the within-target inflation outlook and well-anchored inflation expectations proceed to support the BSP’s shift toward less restrictive monetary policy,” he said.
Nonetheless, Mr. Remolona said the balance of risks to the inflation outlook continues to stay tilted to the upside, citing “potential upward adjustments in transport fares and electricity rates.”
“The impact of lower import tariffs on rice stays the essential downside risk to inflation,” he added.
The central bank raised its baseline inflation forecast to three.3% for 2025 (from 3.2%) and three.5% for 2026 (from 3.4%). For this 12 months, it also upwardly revised its forecast to three.2% from 3.1% previously.
Meanwhile, the risk-adjusted forecasts were also increased to three.2% this 12 months (from 3.1%) and three.4% for 2025 (from 3.3%). The danger-adjusted projection for 2026 was kept at 3.7%.
Each baseline and risk-adjusted forecasts remain throughout the BSP’s 2-4% goal band.
“Nonetheless, the monetary authority will proceed to closely monitor the emerging upside risks to inflation, notably geopolitical aspects,” Mr. Remolona added.
Meanwhile, the BSP also expects domestic demand to “remain firm but subdued.”
“Private domestic spending is predicted to be supported by easing inflation and improving labor market conditions. Nonetheless, downside risks within the external environment could materialize and temper economic activity and market sentiment,” he said.
STILL ‘ON THE TIGHT SIDE’
Asked how much the BSP will cut in 2025, Mr. Remolona said: “In our discussion today, there was a way that perhaps 100 bps over 2025 could be an excessive amount of, but zero would even be too little.”
He earlier said they might reduce rates within the 100-bp range for 2025, though not necessarily at every meeting or every quarter.
“Even with the 75 bps, from all our estimates, we’re still somewhat on the tight side. That for us is a form of insurance. The explanation we’re cutting in baby steps is because we’re not absolutely sure about inflation,” he said.
“We still worry that inflation might begin to rise again. By cutting in baby steps, at this point, we’re still somewhat tight. That’s form of insurance against a possible increase in inflation.”
If the info are usually not too “surprising,” the Monetary Board can proceed its rate-cutting cycle, Mr. Remolona said.
“If there’s an enormous surprise then we may change the direction of monetary policy. But when the surprises are sufficiently small then there’s no reason to actually change the direction that we’re taking.”
PESO
Meanwhile, Mr. Remolona said the BSP is monitoring the peso and its potential impact on inflation.
“We’re concerned concerning the pass-through. The pass-through tends to turn into necessary when there’s enough of a depreciation. So, there’s form of a threshold and we’re still attempting to refine our estimates of that threshold,” he said.
The peso closed at P59 per dollar on Thursday, weakening by one centavo from its P58.99 finish on Wednesday.
Thus far this 12 months, the local currency has hit an all-time low thrice, including on Nov. 26 and on Nov. 21.
Analysts said that expectations of within-target inflation would allow the BSP to proceed easing next 12 months.
“The headline rate is currently only just above the two% lower sure, and we reckon that it’ll largely proceed to hug this level over the approaching 12 months — barring an unexpected supply shock to prices — providing the (Monetary) Board with more room to ease policy,” Pantheon Chief Emerging Asia Economist Miguel Chanco said in a report.
Pantheon expects annual inflation to ease to 2.4% next 12 months from 3.2% this 12 months. It also expects 100 bps value of reductions next 12 months.
“The central bank can have room to chop rates of interest further in the primary half of 2025, supported by a good inflation outlook,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said.
“Barring any unexpected supply shocks, inflation can remain throughout the BSP’s goal range next 12 months.”
Mr. Neri also cited expectations of further easing by the US Federal Reserve’s latest dot plot.
“The behavior of USD/PHP may remain manageable if the BSP’s pace of rate cuts aligns reasonably with the Fed’s trajectory,” he added.
The Ate up Wednesday lowered rates of interest but signaled fewer rate cuts in 2025.
Nonetheless, Mr. Neri noted that the BSP is unlikely to chop rates aggressively next 12 months as “global price risks could thwart outsized monetary easing actions.”
The Monetary Board could deliver as much as 50 bps value of cuts for next 12 months, he said.
“While the primary half of the 12 months may present opportunities, cutting rates within the latter half could possibly be tougher, because the Federal Reserve’s outlook could shift in response to President Trump’s potentially inflationary policies.”
“In an hostile scenario, higher tariffs and mass deportations may re-ignite inflation within the US, which could force global central banks to pivot to monetary tightening,” he added.
