THE BANGKO Sentral ng Pilipinas (BSP) lowered policy rates for a second straight meeting on Thursday and signaled at least one more cut this year to support economic growth.
The Monetary Board on Thursday reduced the target reverse repurchase rate by 25 basis points (bps) to 5.25% from 5.5%, as expected by 15 out of 16 analysts in a BusinessWorld poll last week. This was the lowest level in two and a half years.
Rates on the overnight deposit and lending facilities were also lowered to 4.75% and 5.75%, respectively.
“If things remain on track, we will probably cut once more (by 25 bps),” BSP Governor Eli M. Remolona, Jr. said during a briefing.
The Monetary Board has three more policy meetings scheduled for this year.
“On balance, the Monetary Board sees the need for a more accommodative monetary policy stance. Emerging risks to inflation from rising geopolitical tensions and external policy uncertainty require close monitoring,” he said.
Mr. Remolona also noted a possible slowdown in the global economy, mainly due to the uncertainty arising from US tariff policy and the Middle East conflict.
“This would lead to slower growth in the Philippines,” he said.
Economic managers are targeting 6-8% gross domestic product (GDP) growth this year. In the first quarter, GDP grew by a weaker-than-expected 5.4%.
Mr. Remolona said the outlook for inflation “moderated” and expectations remain “well-anchored.” Inflation eased to 1.3% in May, the slowest pace in over five years and below the 2-4% target range.
The BSP slashed its inflation forecast to 1.6% for this year from 2.4%.
However, it slightly raised its projection for 2026 to 3.4% from 3.3%, previously, and for 2027 to 3.3% from 3.2% previously.
“A rise in oil prices, electricity rate adjustments, and higher rice tariffs, would add to inflationary pressures,” Mr. Remolona said.
Reuters reported oil prices surged early Thursday amid fears a wider conflict in the Middle East could disrupt supplies of crude oil. Brent crude rose nearly 1% to $77.40 a barrel, close to its highest since January.
BSP Deputy Governor Zeno R. Abenoja said a possible increase in oil production as well as muted demand from the global economy “could help stabilize oil prices below the highs that we have seen in the past year.”
“But even with the more recent numbers of international oil prices, it continues to be relatively lower than what we are seeing last year,” he said.
Mr. Abenoja said the Monetary Board remains “very vigilant” to developments in the Middle East, as a further rise in oil prices could add to inflationary pressures.
Mr. Remolona also reiterated that it would be “futile” to intervene in the currency market in the face of global risk aversion.
“We won’t have enough reserves to do that,” he said.
Mr. Remolona said the BSP may have to intervene “more seriously if the (peso) depreciation continues” for a few more weeks, as it could stoke inflation.
The peso closed at P57.45 per dollar on Thursday, dropping by 47 centavos from its P56.98 finish on Wednesday. This was the peso’s weakest close in almost three months or since its P57.69 per dollar close on March 26.
Mr. Remolona added that the BSP will continue to prioritize managing inflation in its coming policy decisions.
“By the way, we are an inflation-targeting central bank, so inflation remains number one.”
He said the BSP will not have to move in lockstep with the US Federal Reserve as the interest rate differential can still be maintained.
Starting August 2024, the BSP cut rates at three consecutive meetings but paused at its February meeting. It cut rates by 25 bps in April.
OUTLOOKMetropolitan Bank & Trust Co. Chief Economist Nicholas Antonio T. Mapa said target-consistent inflation allowed the BSP to support the Philippine economy amid external headwinds.
“We expect BSP to be open to further rate cuts in the coming months although adjustments will be contingent on incoming economic data,” he said.
Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said in an e-mail that the BSP’s continued easing “remains a no-brainer, especially with inflation treading water comfortably below the BSP’s 2-to-4% target range.”
“We reckon that the current spell of headline disinflation has bottomed out, but the coming mean-reversion upwards, at least initially, is likely to be very gradual, keeping inflation below the 2% lower bound for the rest of this year,” Mr. Chanco said.
He noted the economy will struggle to find upward momentum, with GDP growth likely to slow to 5.3% this year, from 5.7% in 2024.
“The upsurge in global oil prices over the past week or so amid the escalation of hostilities between Israel and Iran remains only a risk, for now, to our below-consensus inflation (1.8% for 2025) and policy rate forecasts,” he said.
Mr. Chanco expects two more 25-bps rate cuts this year before “pausing indefinitely.” — AMCS
