BSP Governor Eli Remolona Jr. (File photo)
MANILA – The Bangko Sentral ng Pilipinas (BSP) on Thursday cut key interest rates by 25 basis points to 6.25 percent, noting that the balance of risks to the inflation were tilted toward the downside for this year and in 2025.
"At its monetary policy meeting today, the Monetary Board decided to reduce the BSP’s target reverse repurchase (RRP) rate by 25 basis points to 6.25 percent. The interest rates on the overnight deposit and lending facilities were accordingly adjusted to 5.75 percent and 6.75 percent, respectively," BSP Governor Eli Remolona Jr. said in a briefing at the BSP office in Manila.
The last time the BSP cut key interest rates was in November 2020.
The BSP's cut was also ahead of the US Federal Reserve's possible cut next month.
"We expect the Fed to cut by September, possibly by 50 basis points in September and then 100 basis points until the end of 2024. And then maybe another 125 basis points in 2025. For us, that's data, that's one of the data points we look at. But it doesn't drive our monetary policy. It's just one of the numbers that we consider in our decisions about monetary policy," he said.
Remolona said the country's headline inflation is projected to trend downward to within the government's 2 to 4 percent target after the uptick in July.
BSP deputy governor Francisco Dakila Jr. said the BSP's risk-adjusted inflation forecast for 2024 slightly went up to 3.3 percent from the previous 3.1 percent.
"So this represents a slight upward adjustment to 3.3 percent, and that is largely because of the carryover from the uptick in July inflation due to higher electricity rates and fuel prices," Dakila said.
Headline inflation in July accelerated to 4.4 percent from 3.7 percent in June.
Dakila, however, said the risk-adjusted forecast for 2025 was lower at 2.9 percent from the previous 3 percent.
For 2026, the risk-adjusted inflation forecast was at 3.3 percent.
The BSP expects the balance of risks to the inflation outlook to continue to lean toward the downside for 2024 and 2025 with a modest tilt to the upside for 2026.
"These are mainly due to lower import tariffs on rice and lower tariff is expected to reduce upward pressure on domestic rice prices through higher import volumes, similar to the country's experience following the passage of the rice tariffication law," Dakila said.
On the outside risks, Dakila said the main factors would be through possibly higher electricity rates and external factors such geopolitical risks mostly from the Middle East and Ukraine which could impact global oil and food prices.
Remolona, meanwhile, said the BSP's Monetary Board expects domestic demand prospects to hold firm.
He said despite tight financial conditions, second-quarter economic growth has been solid and the unemployment rate also declined.
Remolona said public investment, alongside easing price pressures and robust employment conditions, is expected to support economic activity.
"With inflation on a target-consistent path, the current macroeconomic outlook supports a calibrated shift to a less restrictive monetary policy stance. Nonetheless, monetary authorities remain mindful of lingering upside risks to prices," Remolona said. (PNA)
