Promising a “baby step” in steering the country’s monetary policy direction for the rest of this year and for next year, the Bangko Sentral ng Pilipinas (BSP) cut its policy rate by another 25 basis points (bps), pegging the target reverse repurchase (RRP) rate to 6 percent.
This adjusts the central bank’s rate on overnight deposit and lending facilities to 5.5 percent and 6.5 percent, respectively.
“These will take effect 17 October 2024,” said Eli Remolona, BSP governor, in a prepared speech Wednesday.
Remolona said the Monetary Board’s decision was based on the assessment that price pressures “remain manageable.”
In particular, Remolona noted risk-adjusted inflation forecast for the year has eased to 3.1 percent from 3.3 percent in the previous meeting.
“However, the risk-adjusted forecasts for 2025 and 2026 have increased slightly to 3.3 percent and 3.7 percent, respectively. Nevertheless, this outlook is safeguarded by well-anchored inflation expectations,” he said.
“The balance of risks to the outlook for 2025 and 2026 has shifted toward the upside owing mainly to potential adjustments in electricity rates and higher minimum wages in areas outside Metro Manila. Meanwhile, downside factors continue to be linked to the impact of lower import tariffs on rice,” he added.
Remolona said the Monetary Board expects domestic economic growth to continue to be “strong” reflecting “improved prospects for household income and consumption, investments, and government spending, which are supported by the start of the monetary easing cycle in August and the announced reduction in reserve requirements in October.”
“On balance, the within-target inflation outlook and well-anchored inflation expectations continue to support the BSP’s shift toward less restrictive monetary policy. Nonetheless, the monetary authority will continue to closely monitor the emerging upside risks to inflation, including geopolitical factors. Looking ahead, the Monetary Board will maintain a measured approach in its easing cycle to ensure price stability conducive to sustainable economic growth and employment,” Remolona added.
Remolona said a 25 bps cut by December is still on the table and the central bank is still looking at a 100 bps “somewhat dovish” cut for next year.
Ruling out a hard landing in the US, Remolona said the BSP is likely to do “baby steps” of 25 bps cut at a time, though “not necessarily every quarter and not necessarily every meeting.”
“We don’t try to cut ahead of the Fed. We just cut where we feel we need to cut based on our data. So what the other central banks do also feeds into our calculations. There is no effort to cut ahead of others. That’s when our data says we should cut,” he said.
The BSP is looking at a neutral rate of 5 percent, he added.
Zeno Ronal Abenoja, BSP assistant governor, said inflation is likely to pick up in 2025 and 2026 though “still within target,” attributed to higher global oil prices and base effect.
Inflation is seen to average 3.2 percent next year and 3.4 percent in 2026.
“Again, all of them showing that inflation will average within the target for 2024 until 2026,” Abenoja said.
