By Katherine K. Chan
THE BANGKO Sentral ng Pilipinas (BSP) on Thursday cut its key policy rate for a 3rd meeting in a row and signaled one other cut this yr that will be the last for this monetary easing cycle.
The Monetary Board reduced the goal reverse repurchase rate by 25 basis points (bps) to five% from 5.25%, as expected by 20 analysts in a BusinessWorld poll last week. This was also the bottom level in nearly three years or since November 2022.
Rates on the overnight deposit and lending facilities were also lowered by 25 bps each to 4.5% and 5.5%, respectively.
The central bank has to date lowered borrowing costs by a complete of 125 bps because it began its easing cycle in August last yr. It delivered two 25-bp cuts each at its last two meetings in April and June.
“Based on the newest data, I feel this puts us at our sweet spot for each inflation and output,” BSP Governor Eli M. Remolona, Jr. said during a briefing.
Inflation fell to an almost six-year low of 0.9% in July, bringing average inflation in the primary seven months to 1.7%.
The Philippine economy expanded by an annual 5.5% within the second quarter, picking up from 5.4% in the primary quarter but slower than the 6.5% growth within the second quarter of 2024. In the primary half, gross domestic product growth averaged 5.4%, below the federal government’s 5.5% to six.5% growth goal range for this yr.
“The projected inflation rate over the following yr or so is where we would like it to be. Output is moving to where we expect our capability is,” Mr. Remolona said. “The policy rate itself is at our ‘Goldilocks’ rate -— neither too high nor too low.”
“I’d characterize this as still dovish, but barely less so than before when it comes to the forward guidance… We had to have a look at so many scenarios because there’s still a whole lot of uncertainty.”
The BSP projected inflation to average 1.7% this yr, a tad higher than its 1.6% projection in June. Its inflation projection for 2026 is at 3.3% from 3.4% previously. For 2027, inflation is projected to rise to three.4% from 3.3% previously.
Despite reaching a “sweet spot,” Mr. Remolona said there’s space for one more rate cut this yr. “The info can change. The sweet spot can move.”
“I feel we’ve got space for yet one more cut. If the information develops the best way we expect it’s going to develop, then perhaps yet one more cut this yr,” the BSP chief said, adding that this might mark the tip of the present easing cycle. “That’s the likely evolution within the policy rate. After all, if something bad happens to output that means there’s an absence of demand, then we cut some more.”
“Overall, we see the inflation outlook to be very manageable, inflation expectations to be well-anchored but we still see more significant risks to the inflation outlook than the output outlook,” Mr. Remolona said.
The Monetary Board has two more policy meetings this yr, in October and December.
In a press release, the BSP noted that potential electricity rate adjustments and increased rice tariffs could “raise inflationary pressures over the policy horizon.”
While domestic demand has held firm, recent US trade policies could dampen global growth.
“The impact of US policies on global trade and investment proceed to weigh on global economic activity. This might temper the outlook for the Philippine economy,” the BSP said.
US President Donald J. Trump upended global trade by unilaterally raising tariffs on all of its trading partners. The US slapped a 19% tariff on Philippine goods, same as 4 other Southeast Asian countries.
“Emerging risks will proceed to require close monitoring. The Monetary Board will determine the monetary policy response based on the evolving outlook for inflation and growth,” the BSP said.
Meanwhile, Mr. Remolona said the increased likelihood of an rate of interest cut by the US Federal Reserve “doesn’t worry them an excessive amount of.”
“As you recognize, we used to fret that our policy rate was inside 100 bps of the Fed’s policy rate,” he said. “If that spread narrows to lower than 100 bps, then the peso might depreciate. We don’t see that anymore, and that doesn’t appear to be happening anymore.”
Mr. Remolona said the peso has been appreciating against the US dollar whilst the difference between the BSP and the Fed’s current goal rate of 4.25%-4.5% has been below 100 bps for a while.
Gareth Leather, a senior Asia economist at Capital Economics, said the “relatively dovish tone” of the BSP suggests further easing is probably going.
“We predict not less than yet one more 25-bp cut by yearend,” he said.
Mr. Leather said the Philippine economy may have more support, as growth may slow within the second half.
“Low inflation and falling rates of interest will provide some support to demand this yr. But with fiscal policy being tightened and exports set to weaken, we expect growth to struggle,” he said.
“Nevertheless, the most important reason we predict further easing is that price pressures are very weak,” he added.
Metrobank Chief Economist Nicholas Antonio T. Mapa said the BSP could be data dependent, “with potential additional easing within the pipeline should inflation remain behaved, and inflation expectations anchored.”
Sunny Liu, lead economist at Oxford Economics, said they expect the central bank to deliver one other rate cut within the fourth quarter.
“We expect inflationary pressures to stay subdued given softer commodity prices. While recent peso weakness could raise concerns over the pass-through to domestic prices, the anticipated Fed rate cut as early as September could ease some depreciation pressure. We proceed to expect BSP to keep up its easing bias, with one other 25-bp cut expected in Q4,” she said.