Monetary Policy Update
The Bangko Sentral ng Pilipinas (BSP) has reduced key interest rates by 25 basis points, citing an improved inflation outlook. This move is expected to have a positive impact on the Philippine economy, which is facing headwinds from geopolitical developments.
Interest Rate Cut
The BSP’s policy rate has been lowered to 5.25 percent, while the overnight deposit and lending rates have been reduced to 4.75 percent and 5.75 percent, respectively. According to BSP Governor Eli Remolona Jr., the Monetary Board took this action due to the moderation in the inflation outlook and the indications of a deceleration in global economic activity.
Inflation Outlook
The BSP has trimmed its inflation forecast for this year to 1.6 percent from 2.4 percent. The forecasts for 2026 and 2027 have been marginally raised to 3.4 percent and 3.3 percent, respectively. Remolona noted that inflation expectations remain well anchored, but the Monetary Board sees the need for a more accommodative monetary policy stance.
Future Rate Cuts
Remolona stated that the BSP may cut interest rates again, depending on the data. "Depending on the data, we may cut twice more, depending on the data we may not cut at all," he said. However, for now, the central bank is on track to deliver another 25-basis-point rate cut. Economists also expect further rate cuts, with Metrobank economist Nicholas Antonio Mapa saying that continued rate cuts would allow the BSP to deliver support to the Philippine economy.
Economic Impact
The rate cut is expected to have a positive impact on the Philippine economy, which is facing challenges from geopolitical tensions and external policy uncertainty. The BSP will continue to assess the impact of prior monetary policy adjustments and safeguard price stability by ensuring monetary policy settings are conducive to sustainable economic growth and employment.
Analysts’ Views
Analysts polled by The Manila Times said the BSP’s policymaking Monetary Board had sufficient room to resume easing as inflation had fallen below the 2.0- to 4.0-percent target. Pantheon Macroeconomics economist Miguel Chanco said their above-consensus base case was still that of two more 25-basis points rate cuts this year before an indefinite pause.
Conclusion
In conclusion, the BSP’s decision to reduce key interest rates is a positive move for the Philippine economy. With the improved inflation outlook and the need for a more accommodative monetary policy stance, the central bank is on track to deliver another rate cut. As the economy faces headwinds from geopolitical developments, the BSP will continue to monitor the situation and make adjustments as necessary to ensure sustainable economic growth and employment.
