By Luisa Maria Jacinta C. Jocson, Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) unexpectedly maintained interest rates on Thursday as global uncertainties jeopardize the projections for inflation and economic growth, although indicated that the easing cycle remains in progress.
During its initial policy assembly of the year, the Monetary Board kept the target reverse repurchase rate at 5.75%.
The overnight deposit and lending facility rates were also held at 5.25% and 6.25%, correspondingly.
The central bank had reduced rates by 25 basis points (bps) at each of its last three sessions since August 2024.
“On balance, uncertainties regarding inflation and growth outlook necessitate maintaining monetary policy parameters,” BSP Governor Eli M. Remolona, Jr. stated.
“Prior to deciding on the timing and extent of future cuts in the policy interest rate, the Monetary Board finds it wise to wait for further evaluations of the ramifications of global policy uncertainties and the possible effects of the existing policies.”
The BSP’s choice surprised many, as 19 out of 20 analysts surveyed by BusinessWorld anticipated a 25-bp reduction at Thursday’s gathering. Only one analyst predicted the BSP would keep rates unchanged.
“Typically, we would have implemented further cuts, but something has shifted. The shift is the uncertainty surrounding global developments, particularly the unpredictability regarding trade policy,” Mr. Remolona noted.
US President Donald J. Trump’s intention to impose reciprocal tariffs on all nations that levy duties on US imports has heightened concerns about a broader global trade conflict.
Since assuming office in January, Mr. Trump has placed tariffs on Chinese imports and a 25% tariff on steel and aluminum imports, while deferring tariffs on imports from Mexico and Canada.
“However, there are additional sources of uncertainty, and we’re not entirely comfortable assessing the repercussions of that, the uncertainty itself. We don’t have full clarity on what the policies will entail,” Mr. Remolona continued.
The BSP head mentioned they are examining the possibility of adjusting their models to more accurately reflect these uncertainties.
“We are encountering an unusual situation in terms of policy uncertainty, and our models don’t capture those dynamics effectively,” he added.
‘STILL IN EASING CYCLE’
In the meantime, Mr. Remolona asserted that despite the policy pause, the central bank is “still in the easing cycle” and is not contemplating an increase in borrowing costs.
“Looking forward, the BSP expects to persist in its gradual transition to less restrictive monetary policy settings, even as prior policy changes gradually take effect in the economy,” he stated.
“At present, the question is when we will actually lower the policy rate. I believe we have five more meetings remaining this year, so in some of these sessions, we will likely ease (but) not in all of them.”
The central bank will probably continue to decrease interest rates by 25 bps at a time, he mentioned.
“This doesn’t imply 25 bps each and every time at every policy meeting. It simply suggests that when we do reduce, it will be at 25 bps. At least that’s our hope; I hope we won’t need to reduce by more than that.”
Mr. Remolona previously indicated they might cut by up to 50 bps this year. When asked about this prediction again, he stated: “That’s what it seems.”
The BSP will also continue to contemplate keeping rates steady, depending on the data, Mr. Remolona indicated, but noted that a rate cut is still “on the table” for the upcoming Monetary Board meeting on April 3.
INFLATION OUTLOOK
The central bank disclosed that the risks to the inflation outlook have become “broadly balanced” for this year and the subsequent one.
The central bank raised its risk-adjusted prediction for this year to 3.5% from 3.4% earlier. Nevertheless, it maintained its projection for 2026 at 3.7%.
The BSP’s baseline forecasts are also closely aligned with its risk-adjusted predictions.
“As mentioned, since the risks are now more broadly balanced, they are not substantially different from the risk-adjusted forecasts,” BSP Deputy Governor Francisco G. Dakila, Jr. explained.
Mr. Dakila noted that there might be a delay in the effects of the minimum wage modifications implemented last year.
“It is worth noting that averaging the adjustments in nominal minimum wages in 2024 across the regional wage boards would yield an average of roughly 8.1%, which will influence inflation this year, particularly in the latter half of 2025,” he remarked.
Favorable base effects from diminishing commodity price pressures in 2024 could also have some impact in the second half of this year, he added.
“Due to these two factors, there may be a slight uptick in inflation during the second half of 2025, but we anticipate that inflation will return to the midpoint of the target range in 2026, supported by a decline in oil prices as the market remains in backwardation,” Mr. Dakila stated.
“Concerning the risks… there might be some upward pressures arising from utilities, but this is countered by the moderation of inflation in rice,” he added.
Nonetheless, Mr. Remolona mentioned that domestic growth prospects “remain robust.”
“However, uncertainty surrounding global economic policies and their repercussions on the domestic economy has escalated significantly,” he remarked.
Economic leaders are targeting a 6-8% growth in gross domestic product (GDP) for this year.
While inflation worries carry a “greater weight” in the BSP’s policymaking, Mr. Remolona indicated they still consider economic growth.
“We aim to avoid unnecessary output loss. If feasible, we aim to lower inflation without compromising output. That’s a balancing act. Currently, this balancing act is more complex than usual.”
‘SHORT-LIVED’ PAUSE?
At the same time, analysts predict that the central bank will recommence its rate-cutting cycle shortly.
“We perceive this as a pause, rather than a halt to the easing cycle,” Capital Economics Senior Asia Economist Gareth Leather asserted.
“We believe that the decision to hold rates on (Thursday) after three consecutive cuts will prove to be brief,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco noted.
Mr. Chanco stated that sluggish GDP growth and within-target inflation provide “ample policy space for rate reductions without diminishing the credibility of its ‘less restrictive’ stance.”
“As long as inflation stays manageable, further cuts are likely in the coming months,” Mr. Leather added.
Both Capital Economics and Pantheon forecast the BSP to implement up to 100 bps of rate reductions this year.
“Given the moderate level of inflation, the real policy rate in the country remains about 250 bps above its historical average. Ultimately, we’re maintaining our baseline view and expect to see 100 bps in additional cuts before the year concludes,” Mr. Chanco remarked.
The Philippines is also expected to be minimally impacted by Mr. Trump’s proposed tariffs.
“While we believe US trade policy will stay uncertain for a while, the central bank clearly requires time before determining its response. Our projection is that the Philippines will experience a 10% universal tariff, but the impact will be relatively minimal (on the currency, inflation, and growth),” Mr. Leather said.
RRR CUTS ‘FAIRLY SOON’
In the meantime, Mr. Remolona mentioned that reserve requirement ratio (RRR) reductions are still on the agenda for this year.
“What I can share is that we will likely decrease it from 7% to 5%. The timing is still being discussed, but I believe it will be fairly soon. Perhaps even before the middle of the year,” he stated.
The BSP lowered the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5%, effective last October.
Meanwhile, the central bank is also working on creating a “playbook” to guide foreign exchange interventions.
“We’re designing a manual for intervention in the foreign exchange arena. We have been intervening based on our judgment and experience, but we haven’t formalized this know-how,” Mr. Remolona noted.
This will not result in additional regulation, he stated, but will be grounded in “improved economic analysis and enhanced market intelligence.”
“We are concerned about the pass-through to the exchange rate because, as you know, global trade is often invoiced in dollars…even when the narrative behind the depreciation is primarily a stronger dollar,” he remarked.
“However, when the peso appears to depreciate against the dollar, at some point it triggers inflation. We are wary of that. By the way, for most of the year, it hasn’t been a peso depreciation. It’s been rather a strong dollar influencing the exchange rate,” he concluded.
