The Bangko Sentral ng Pilipinas (BSP) on Thursday took a decisive step in its monetary policy, cutting its key interest rate by 25 basis points to 5.75 percent, signaling a shift toward a more accommodative stance to support the economy. The move, which also adjusted the BSP’s overnight deposit and lending rates to 5.25 percent and 6.25 percent, respectively, aims to foster economic growth while keeping inflation within target levels.
The rate cut, widely expected, is a response to a well-anchored inflation outlook. The BSP forecasts a slight increase in the inflation forecast for 2025 to 3.4 percent, up from the previous estimate of 3.3 percent. However, BSP governor Eli Remolona acknowledged, risks to inflation remain, particularly from potential hikes in transport fares and electricity rates, though the impact of lower rice tariffs is expected to ease pressures. The BSP remains confident that inflation will remain within its target range, despite these risks.
Remolona indicated that a not too surprising inflation data in the months forward will allow the BSP to push ahead along the easing path. “If the surprises are small enough, there is no reason to change” the policy direction, he said.
The Bank of the Philippine Islands (BPI) shares a similar outlook, anticipating that further rate cuts may be possible in 2025, driven by favorable inflation trends. Both the BSP and BPI are optimistic that improving global rice production, stable commodity prices, and a slowdown in major economies, particularly China, could help sustain the favorable inflation environment. Furthermore, rising US oil production is seen as a factor that could stabilize global oil prices, offering relief to Philippine consumers.
While the BSP is expected to adopt a cautious approach in the latter half of 2025, both institutions see room for potential easing in the first half, barring any significant geopolitical or supply disruptions. The BSP’s primary focus remains on balancing the need to stimulate growth with the responsibility of controlling inflation, mindful of the global economic risks that could affect the domestic outlook.
In summary, the BSP’s rate cut is seen as a positive move to support economic activity and offer relief to borrowers, though the central bank will continue to monitor both global and domestic risks closely as it navigates its monetary policy path in the coming months.
Analysts like Ben Paracuelles, chief economist at Nomura, projects the policy rate to hit 5 percent next year on the back of favorable inflation outlook. According to him, the BSP’s easing bias has mayby 75 basis points more to go lower in the poliy horizon.
