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By Luisa Maria Jacinta C. Jocson, Senior Journalist
The Bangko Sentral ng Pilipinas (BSP) may potentially implement another rate reduction later this month, according to its chief official on Monday.
BSP Governor Eli M. Remolona, Jr. indicated that a rate reduction is “quite probable” at the Monetary Board’s upcoming meeting on Aug. 28.
To date, the central bank has reduced borrowing expenses by a total of 125 basis points (bps) since initiating its easing cycle in August of the previous year.
Should the BSP decrease policy rates this month, it would signify its third consecutive rate cut. In June, the Monetary Board lowered rates by 25 bps, adjusting the benchmark rate to 5.25%.
Mr. Remolona mentioned they are anticipating two additional rate cuts this year.
“I believe two is more probable than one. Two remains more probable,” he stated to reporters at the Economic Journalists Association of the Philippines Economic Forum.
However, he remarked that the chance of three rate cuts is “unlikely.”
“That would exceed what we regard as the ‘Goldilocks’ rate and output gap. Our output gap is already limited,” he expressed in mixed English and Filipino.
Earlier, Mr. Remolona indicated that it would require “something very unusual” to justify a third rate cut this year, like a substantial economic slowdown, which also seems unlikely.
The economy expanded by an annual 5.5% in the second quarter, bolstered by a resurgence in agricultural production and increased household spending.
For the first half of the year, gross domestic product (GDP) growth averaged 5.4%, which is slower than the 6.2% the previous year. The government is aiming for a GDP growth of 5.5-6.5% this year.
Following the Aug. 28 meeting, the BSP will hold two additional policy sessions before the conclusion of 2025.
Meanwhile, Mr. Remolona stated that inflation is projected to remain well within target this year.
“Regarding inflation, we anticipate reaching 2% in 2025,” he remarked.
“That’s considerably better than other emerging markets, which might hit 3.1%, and other developed economies, which we expect will reach 3.3%. Thus, (the Philippines will experience) lower inflation compared to advanced economies and emerging markets.”
Headline inflation significantly decreased to a near six-year low of 0.9% in July, marking the fifth consecutive month that inflation remained below the central bank’s 2-4% target band.
In the first seven months of the year, inflation averaged 1.7%.
“Reviewing our projections, we believe our inflation target remains attainable. I think we still have work ahead of us,” Mr. Remolona stated.
The BSP expects headline inflation to average 3.3% and core inflation at 3.1% in 2027.
“Both are within our targeted range. We hope to achieve that. I believe it would aid in stabilizing the economy, fostering investment, and supporting lending by our banks,” he added.
PESO PERFORMANCE
In the meantime, the BSP chief mentioned they are not overly concerned about the peso’s recent performance.
“It’s not the figure itself (that concerns us), it’s the manner in which the peso depreciates. If the depreciation is sharp enough over a period, say, two weeks or one month, that results in inflation.”
The peso settled at P57.04 against the dollar on Monday, appreciating by seven centavos from its P57.11 finish on Friday. Earlier this month, the peso dropped to the P58-per-dollar level amid hawkish remarks from the US Federal Reserve.
“If there are fluctuations like that, we want to mitigate them, but we don’t want to eliminate the fluctuation itself. We aim to maintain the peso at a certain level. We want to prevent it from weakening excessively over a short duration.”
Mr. Remolona mentioned that the central bank has been intervening in “small amounts.”
“We engage in a little day-to-day intervention to control volatility. We don’t desire excessive volatility. Volatility is unfavorable for both imports and exports,” he explained.
“Most of the time, it’s a robust dollar story rather than a peso story. However, there are instances when that isn’t the case. In June, for example, the peso depreciated while the dollar didn’t quite gain much strength.”
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