Monetary Board moves after Trump suspends reciprocal tariffs
THE policy-setting Monetary Board on Thursday decided to lower the Target Reverse Repurchase Rate of the Bangko Sentral ng Pilipinas (BSP) by 25 basis points (bps) to 5.50 percent, BSP Governor and Monetary Board Chairman Eli M. Remolona Jr. said.
The board reached the decision after it factored in the 90-day suspension on most of the higher import tariffs issued by US President Donald Trump on America’s trading partners, the BSP said.
“We have looked at global models. The advantage of the announcement on the reciprocal tariffs is we now have numbers to feed into the analysis,” Remolana said in a BSP statement.
“That’s a big thing. It clears up a lot of uncertainty. Of course, there’s a 90-day suspension of these tariffs, and the tariffs themselves will change,” he added.
Remolana is of the view that in general, the tariffs would shrink the volume of global trade, given that it would be hard to figure out what exactly would happen to the supply chains once the reciprocal tariffs pushed ahead.
“In our case, our number one export is semiconductors. That’s part of a long supply chain. We have a 17 percent reciprocal tariff that was announced,” Remolana said, adding that some exemptions were given to the Philippines regarding semiconductor exports.
The board also took into consideration the manageable inflation outlook, as well as the risks to economic growth, which the board members deemed suitable for a shift toward a more accommodative monetary policy stance.
Support growth, with caution
John Paolo Rivera, a senior research fellow at the Philippine Institute for Development Studies, said the decision to cut key rates signals a shift toward supporting growth.
“This move could help boost consumption and investment, but the BSP is likely to remain cautious, watching for any second-round effects on inflation and volatility in the peso,” he added.
Interest rates on overnight deposit were adjusted accordingly, to 5.0 percent, and the lending facilities, to 6.0 percent.
Inflation forecasts
“The latest inflation forecasts have declined from the forecasts of the February policy meeting. Inflation expectations also remain within target,” Remolona said. He added that the risk-adjusted inflation forecast for 2025 fell to 2.3 percent from 3.5 percent, while the forecast for 2026 declined to 3.3 percent from 3.7 percent.
The risk-adjusted inflation forecast for 2027 now stands at 3.2 percent.
The forecasts are well-within the central bank’s 2 to 4 percent target range for 2025, 2026 and 2027.
Remolona said the risks to the inflation outlook have also eased and continue to be broadly balanced from 2025 to 2027.
The upside pressures will come from possible increases in transport charges, meat prices, and utility rates, while the downside risks are tied to the continuing impact of lower tariffs on rice imports and weaker global demand.
‘Baby steps’
Remolona said the board is taking “baby steps” as they contemplate on further lowering the policy rate this year.
“We can’t tell you exactly how many more cuts, but there could be further cuts this year. We’re still doing 25 basis points at a time, but I can’t tell you how many more times,” he said.
Uncertainty remains, but less now than before, Remolona added.
He pointed out that the Monetary Board sees a more challenging external environment now, which could weaken global gross domestic product (GDP) and heighten the downside risk to domestic economic activity.
Expect more cuts
Despite the 25 bps cut the present monetary policy stance is still somewhat restrictive, giving the board enough elbow room to go for more cuts.
Pantheon Macroeconomics, a provider of economic intelligence reports to financial market professionals around the world, expects the Monetary Board to cut interest rates three more times.
“We remain content with our below-consensus terminal benchmark rate forecast of 4.75 percent, which implies three more cuts in the months ahead, one more than what the consensus sees,” Pantheon economist Miguel Chanco said in a report.
The crucial thing about the Philippines is that growth remains sub-par, Chanco said, emphasizing that “we’ve recently downgraded our 2025 GDP (gross domestic product) forecast to 5.3 percent from 5.4 percent in the wake of the US’ decision to levy a blanket 10 percent tariff against all imports, including those from the Philippines.”
The resumption of the BSP’s easing cycle was given the green light by the slower inflation numbers, Pantheon said.
Capital Economics also thinks the central bank will loosen its policy stance further over the coming months as inflation is set to remain under control.
“We expect a combination of easing food price inflation and lower transport price inflation to keep inflation contained over the coming months,” Joe Maher, assistant economist at Capital Economics, said in another report.
“Our view is for 75 bps of further easing in 2025, which is more dovish than that of the consensus,” Maher added.
Metrobank chief economist Nicholas Mapa said the easing cycle could actually continue through 2025 because of soft inflation and the fallout from Trump’s “Tariff Tantrums.”
Michael Ricafort, RCBC’s chief economist, said softer GDP data at 5.3 percent year-on-year in Q4 2024 and 5.2 percent in Q3 2024 would further support local policy rate cuts in the coming months.
