THE BANGKO SENTRAL ng Pilipinas (BSP) on Thursday announced there is capacity for two additional rate reductions this year as price growth stays manageable.
“There’s capacity [to lower] because inflation is subdued, and growth is slightly lower too. However, the reductions can’t completely offset the deceleration in growth,” BSP Governor Eli M. Remolona, Jr. informed reporters.
Last month, the BSP reduced the target reverse repurchase rate by 25 basis points (bps) to 5.25% from 5.5% amid a softening inflation outlook and weaker-than-expected economic growth in the first quarter.
Inflation eased to a more than five-year low of 1.3% in May, bringing the five-month average to 1.9%, marginally below the BSP’s 2-4% target range.
A BusinessWorld survey of 17 analysts produced a median estimate of 1.5% for June inflation, which is set to be released on Friday (July 4).
In response to whether slowing inflation provides the BSP the ability to reduce rates, Mr. Remolona answered: “Absolutely.”
Upon being asked if this suggests two rate cuts this year, he replied: “It’s conceivable. We still have meetings in August, October, and December.”
“The decline in (first-quarter) growth was attributed to uncertainty. Major consumption items and investments were deferred, and exports faced a slowdown,” Mr. Remolona mentioned in a mix of English and Filipino.
The Monetary Board’s remaining policy meetings for this year are planned for Aug. 28, Oct. 9, and Dec. 11.
Mr. Remolona indicated that the central bank will remain reliant on data before determining if additional rate cuts are necessary to bolster economic growth.
The Development Budget Coordination Committee (DBCC) revised the gross domestic product (GDP) growth target to 5.5-6.5% for this year, down from 6-8% previously, owing to increased global uncertainties arising from shifts in US trade policy and conflicts in the Middle East.
Additionally, the DBCC refined the GDP growth target range to 6-7% for 2026 to 2028, revised from 6-8% earlier.
Mr. Remolona expressed that the updated DBCC growth targets appeared more “realistic.”
Nonetheless, he confirmed that the BSP would maintain its 2-4% inflation target for the time being.
The DBCC adjusted its inflation forecast for 2025 to 2-3% from 2-4% previously but kept the 2-4% outlook for 2026 to 2028.
Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion expressed in a Viber message that he still anticipates just one more rate reduction this year.
“Nonetheless, the possibility for a second is now open if circumstances justify it. The revised DBCC targets, the improved inflation expectations, and the global and domestic challenges (sluggish global growth, geopolitical tensions, and domestic risks such as oil prices and rice tariffs are closely observed by the BSP) are among the factors that might support a more accommodative approach to foster growth,” Mr. Asuncion stated.
Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas mentioned in a Viber message that the BSP could undertake two additional rate reductions this year, provided inflation remains in the low 2% spectrum.
WAGE INCREASE
Meanwhile, Mr. Remolona remarked that the P50 daily wage hike for minimum wage earners in Metro Manila could influence inflation.
“There might be a slight effect, but we will still evaluate it,” he stated.
Effective July 18, approximately 1.2 million workers in the National Capital Region and surrounding cities and provinces will receive a P50 daily wage boost — the largest pay increase ever granted by the National Wages and Productivity Commission.
This daily wage increase translates to a P1,100 monthly rise for a five-day work week or a P1,300 increase for those working six days per week, as stated by the Department of Labor and Employment. — Aaron Michael C. Sy