The Bangko Sentral ng Pilipinas cut its target reverse repurchase rate by 25 basis points to 6.25 percent, underscoring the monetary authority’s confidence that headline inflation is on a downward trajectory despite the spike in July.
The interest rate reduction comes 27 months after the BSP raised overnight rates by 25 basis points to 2.25 percent in May 2022 to start a tightening cycle intended to ease inflationary pressure. It paused hiking rates in October after an aggressive run that raised rates by a total 4.5 percentage points.
BSP Gov. Eli Remolona said it was possible the Monetary Board may deliver another rate cut during the policy meeting either in October or December. For now, however, the BSP chief is hopeful the policy easing will also lead to lower cost of borrowing.
The last time the BSP cut rates was in November 2020, when it brought down policy rate to a record low 2.00 percent to spur an economy reeling from the devastating impact of the COVID-19 pandemic.
The latest adjustment also led to reductions in the overnight deposit and lending facilities, which are now set at 5.75 percent and 6.75 percent, respectively.
The BSP expects headline inflation to decline and stay within the its 2-4 percent target range, despite a recent increase in July.
The central bank forecasts inflation in 2024 and 2025 at an average 3.3 percent and 2.9 percent, respectively. For 2026, the projection for average inflation is 3.3 percent.
The risks to inflation are generally tilted towards the downside for 2024 and 2025, mainly due to lower import tariffs on rice, but there are some upside risks for 2026 from potential higher electricity rates and external factors.
Economic conditions remain strong, with solid second-quarter gross domestic product growth and a declining unemployment rate. Public investment and favorable employment conditions are expected to bolster economic activity.
Given the current inflation trajectory and economic outlook, the Board has opted for a more accommodative monetary policy.
However, they remain vigilant about potential price pressures. Moving forward, the Monetary Board will continue to manage monetary policy to maintain price stability and support balanced economic growth.
