MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) cut its interest rates by 25 basis points (bps), bringing its key policy rate to 6% as the central bank continues to “shift toward less restrictive monetary policy.”
This is the second consecutive rate cut the monetary authority made in 2024 with the first cut made in August 15, when the BSP lowered its policy rate by 25 basis points to 6.25%.
On Wednesday, the central bank also announced that interest rates on the overnight deposit and lending facilities were adjusted to 5.5% and 6.5%, respectively.
“The Monetary Board’s decision is based on its assessment that price pressures remain manageable,” BSP Governor Eli Remolona Jr. said in a press briefing on Wednesday, October 16.
The BSP plays a key role in managing inflation. When its policy rates are high, interest rates of banks also increase, discouraging the public from taking out loans and slowing down consumer spending.
When there is increased demand for services in the country, prices of goods and services can also increase.
Just last September, however, the country posted its lowest inflation rate in 4 years, easing to 1.9%. The main contributors to the downtrend in inflation were food and non-alcoholic beverages (1.4% from 3.9% in August) and transport (-2.4% from 0.2%).
Year-to-date, average headline inflation stood at 3.4%.
On Wednesday, the BSP put its risk-adjusted inflation forecast for 2024 at 3.1%, easing from 3.3% set during its previous meeting.
However, its inflation outlook for 2025 and 2026 has increased to 3.3% and 3.7%, respectively. This is still within the government’s target range of 2% to 4%, but slightly higher than the central bank’s previous outlook of 2.9% for 2025 and 3.3% for 2026.
“The balance of risks to the outlook for 2025 and 2026 has shifted to the upside, owing mainly to potential adjustments in electricity rates and higher wages in areas outside Metro Manila,” Remolona said.
“Meanwhile, downside factors continue to be linked to the impact of lower import tariffs on rice.”
For the central bank’s baseline inflation forecast, BSP Assistant Governor Zeno Ronald Abenoja said they expect inflation to still average within the government’s target range: 3.1% for 2024, 3.2% for 2025, and 3.4% for 2026.
The Monetary Board will hold its next meeting on December 19. Remolona quelled expectations of a 50-basis-point reduction for the key rate in December as the BSP governor said it is “unlikely.”
“I think what would make 50 basis points possible would be a scenario in which we see a hard landing, but otherwise I think that’s too aggressive a cut,” Remolona said. – Rappler.com