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By Katherine K. Chan
FINANCE SECRETARY Ralph G. Recto dismissed an “off-cycle” action on monetary policy relaxation despite growth in the third quarter being weaker than anticipated, but pointed out that there is a significant likelihood of a rate reduction at the upcoming meeting of the central bank.
“I’m uncertain regarding an ‘off-cycle’ reduction, but there’s a strong probability for a rate decrease before the year concludes,” Mr. Recto informed BusinessWorld on the fringes of a Senate hearing on Thursday.
He remarked that the Monetary Board is inclined to lower the primary policy rate by 25 basis points (bps) during the meeting on Dec. 11.
When inquired if there’s a possibility of a 50-bp reduction, Mr. Recto responded: “There’s always a possibility. It all hinges on the developments. However, I believe there’s a greater likelihood for a 25-bp cut.”
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Zeno Ronald R. Abenoja told BusinessWorld that they have not considered any potential off-cycle monetary policy relaxation.
“I haven’t come across anything,” he stated. “Thus, it’s likely just hearsay. To my knowledge, there have been no discussions.”
In October, the BSP reduced borrowing costs by 25 bps to a three-year low of 4.75%. Thus far, it has eased the key policy rate by 175 bps since commencing its easing cycle in August of the prior year.
The weaker-than-expected gross domestic product (GDP) growth from the third quarter and mild inflation provide the BSP with scope for yet another rate reduction in December.
The Philippine economy expanded by 4% in the third quarter, the slowest growth rate recorded in more than four years or since Q1 of 2021.
BSP Governor Eli M. Remolona, Jr. mentioned in October that they could reduce rates by an additional 25 bps at the Dec. 11 meeting and possibly more in 2026 to bolster the economy amid a slowdown caused by the ongoing flood control scandal.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort indicated on Thursday that the third-quarter GDP information has stirred speculation about an off-cycle interest rate cut.
Mr. Ricafort noted it is “viable, but not guaranteed” for the BSP to decrease rates prior to its scheduled meeting on Dec. 11.
“There have been whispers in the market since (Wednesday) about a potential off-cycle monetary easing, especially a reduction in large banks’ RRR (reserve requirement ratio), following the lower local GDP growth statistics (on Nov. 7),” he shared via a Viber message on Thursday.
“Every single percentage point reduction in large banks’ RRR translates to around P180 billion more liquidity entering the banking system, which could boost lending and other investments such as fixed income or bonds, among others,” he added.
On Feb. 21, the BSP lowered universal and commercial banks’ RRR by 200 bps to 5%, effective the week of March 28.
Meanwhile, Mr. Ricafort observed that the latest third-quarter GDP information has caused the yields on the PHP (Philippine peso) Bloomberg Valuation Service to drop slightly and the peso to fall to a new low against the US dollar.
On Nov. 12, the peso dropped to a fresh record low after closing at P59.17 against the greenback, slipping by 18.5 centavos from its P58.985 finish on Tuesday.
The BSP chief previously stated they will not step in the foreign exchange market unless the peso’s depreciation triggers inflationary pressures.
“I believe the BSP intervenes merely to ensure that the curve is not excessively wide,” Mr. Recto remarked.
“However, I’m confident everyone realizes that the BSP, to an extent, intervenes in the market just to flatten the curve.”
He also indicated that the peso might not weaken further if both the BSP and the US Federal Reserve opt for cuts in December.
“It entirely relies on the actions of the Fed,” Mr. Recto stated. “Should the Fed also lower rates, then it would be comparable.”
Last month, the Fed implemented its second 25-bp reduction this year, resulting in an interest rate range of 3.75-4%. This brought the total cuts to 150 bps since September 2024.
Nonetheless, the prospect of December easing by the Fed remains unclear as policymakers deliberate over economic data following US President Donald J. Trump concluding the longest US government shutdown last week.
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