By Luisa Maria Jacinta C. Jocson, Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) decreased its central rate for a third consecutive session on Thursday while indicating the likelihood of fewer reductions in 2025.
On Wednesday, the Monetary Board decreased the target reverse repurchase rate by 25 basis points (bps), lowering the key rate to 5.75% from 6%.
This aligns with the predictions of 13 out of 16 experts surveyed in a BusinessWorld poll conducted last week.
The rates on the overnight deposit and lending facilities were also cut to 5.25% and 6.25%, respectively.
The central bank has now decreased rates by a cumulative 75 bps this year, commencing its easing cycle in August.
“Looking forward, the Monetary Board will adopt a cautious strategy regarding monetary policy easing to ensure price stability that fosters sustainable economic growth and employment,” BSP Governor Eli M. Remolona, Jr. stated.
He mentioned that inflation is anticipated to remain within the 2-4% target range over the policy timeline.
“Overall, the inflation forecast within the target and well-managed inflation expectations continue to endorse the BSP’s transition toward less stringent monetary policy,” he noted.
Nevertheless, Mr. Remolona asserted that the risk balance concerning the inflation outlook remains skewed upwards, referencing “potential increases in transport fares and electricity rates.”
“The effect of reduced import tariffs on rice remains the primary downside risk to inflation,” he added.
The central bank revised its baseline inflation forecast to 3.3% for 2025 (up from 3.2%) and 3.5% for 2026 (up from 3.4%). For this year, it also increased its projection to 3.2% from a previous 3.1%.
Meanwhile, the risk-adjusted forecasts were also enhanced to 3.2% this year (from 3.1%) and 3.4% for 2025 (from 3.3%). The risk-adjusted estimate for 2026 was maintained at 3.7%.
Both baseline and risk-adjusted forecasts continue to lie within the BSP’s target range of 2-4%.
“Nevertheless, the monetary authority will persist in closely monitoring the rising upside risks to inflation, particularly geopolitical factors,” added Mr. Remolona.
At the same time, the BSP also foresees domestic demand to “remain robust yet subdued.”
“Private domestic expenditure is anticipated to benefit from declining inflation and enhancing labor market conditions. However, external environment risks could arise and dampen economic activity and market sentiment,” he mentioned.
STILL ‘ON THE TIGHT SIDE’
When asked about the expected rate cuts in 2025, Mr. Remolona expressed: “In our discussions today, it seemed that perhaps 100 bps over the length of 2025 might be excessive, but zero would also be inadequate.”
He previously stated that they might decrease rates within the 100-bp range for 2025, although not necessarily at every meeting or quarterly.
“Even with the 75 bps cut, according to all our assessments, we are still somewhat on the tight side. For us, this serves as a kind of safeguard. The reason we’re opting for incremental reductions is that we are not entirely certain about inflation,” he explained.
“We remain concerned that inflation could rise again. By proceeding with gradual cuts, we maintain a cautious stance. That’s a form of protection against a possible inflation increase.”
If the data do not present significant surprises, the Monetary Board can persist in its rate-cutting cycle, Mr. Remolona stated.
“If a substantial surprise occurs, we may adjust the direction of monetary policy. However, if the surprises are minor enough, there would be no real need to change our course.”
PESO
Meanwhile, Mr. Remolona indicated that the BSP is observing the peso and its possible effects on inflation.
“We are mindful of the pass-through effect. The pass-through becomes significant when there’s considerable depreciation. Thus, there is a certain threshold, and we are still working on refining our estimates of that threshold,” he noted.
The peso ended at P59 per dollar on Thursday, declining by one centavo from its P58.99 close on Wednesday.
So far this year, the local currency has reached an unprecedented low on three occasions, including on Nov. 26 and Nov. 21.
Analysts mentioned that expectations of within-target inflation would enable the BSP to maintain easing next year.
“The headline rate is currently just above the 2% lower threshold, and we anticipate it will largely remain around this level over the next 12 months — barring any unexpected supply shocks to prices — providing the (Monetary) Board with more flexibility to ease policy,” stated Pantheon Chief Emerging Asia Economist Miguel Chanco in a report.
Pantheon forecasts annual inflation to decline to 2.4% next year from 3.2% this year, anticipating 100 bps of reductions next year.
“The central bank may have the capacity to further lower interest rates during the first half of 2025, supported by a positive inflation outlook,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. remarked.
“Unless unexpected supply shocks occur, inflation is likely to stay within the BSP’s target range next year.”
Mr. Neri additionally referenced 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 cuts aligns reasonably with the Fed’s trajectory,” he added.
The Fed on Wednesday lowered interest rates but hinted at fewer rate cuts in 2025.
However, Mr. Neri observed that the BSP is unlikely to implement aggressive rate cuts next year as “global price risks could impede substantial monetary easing measures.”
The Monetary Board could deliver a maximum of 50 bps worth of cuts for next year, he noted.
“While the initial part of the year could present opportunities, cutting rates in the later half could prove more difficult, as the Federal Reserve’s outlook may shift due to President Trump’s potentially inflationary policies.”
“In a negative scenario, heightened tariffs and widespread deportations could reignite inflation in the US, potentially prompting global central banks to pivot toward monetary tightening,” he added.