Introduction to Philippine Central Bank’s Decision
The Philippine central bank is expected to cut its key interest rate by 25 basis points on Thursday to support economic growth. This decision comes as subdued inflation gives the bank room to ease further. According to a Reuters poll of economists, at least one more reduction is expected later this year.
Current Economic Situation
Consumer prices rose just 0.9% in July, the slowest pace in nearly six years and well below the central bank’s 2%-4% target. This gives the Bangko Sentral ng Pilipinas (BSP) room to press ahead with an easing cycle it began a year ago. Second-quarter GDP growth accelerated to 5.5%, its fastest in a year, due to slowing inflation that lifted household spending.
Economists’ Expectations
All 26 economists in the August 18–25 Reuters poll expected the BSP to trim its overnight borrowing rate by 25 basis points to 5.00% at its August 28 meeting. "It’s largely just a continuation of where the policy stance is and basically to support growth," said Lavanya Venkateswaran, senior ASEAN economist at OCBC. Nearly 82% of economists predicted another 25-basis-point cut by year-end, bringing the policy rate to 4.75%.
Potential Risks and Challenges
While the central bank balances price stability with growth, a 19% U.S. tariff on Philippine goods announced by U.S. President Donald Trump poses risks to the country’s exports. The global backdrop also favors easing as weak external demand and heightened trade uncertainty from U.S. tariffs weigh on exports. "We expect BSP to maintain an accommodative stance for the foreseeable future," said Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines.
Conclusion
In conclusion, the Philippine central bank’s decision to cut its key interest rate is expected to support economic growth and bolster household spending. With subdued inflation and a slowing economy, the bank has room to ease further. However, potential risks and challenges, such as U.S. tariffs on Philippine goods, may impact the country’s exports and economic growth. The bank’s accommodative stance is expected to continue, with at least one more reduction predicted later this year.
