Bangkok Sentral Ng Pilipinas (BSP) lowered policy rates at its second straight meeting on Thursday, noting that it had cuts at least once this year to support economic growth.
The Monetary Commission on Thursday lowered its target reverse repurchase rate by 25 basis points (bps), down 5.25% from 5.5%, as expected among 15 of 16 analysts BusinessWorld Last week’s poll. This is the lowest level in two and a half years.
Interest rates for overnight deposit and loan facilities were also reduced to 4.75% and 5.75% respectively.
BSP Governor Eli M. Remolona (Jr.
The Monetary Commission plans to hold three policy meetings this year.
“Overall, the Monetary Commission sees the need to adopt a more adaptive monetary policy stance. Emerging risks from rising geopolitical tensions and external policy uncertainty need to be closely monitored,” he said.
Mr Remorona also noted that the global economy could slow down, mainly due to uncertainty arising from U.S. tariff policies and the Middle East conflict.
“This will lead to slower growth in the Philippines,” he said.
This year, economic managers are targeting GDP growth of 6-8%. In the first quarter, GDP grew by more than expected by 5.4%.
Mr Remolona said the outlook for inflation “regulated” and expectations remain “strong”. Inflation fell to 1.3% in May, the slowest pace in five years, below the target range of 2-4%.
BSP cuts its inflation forecast to 1.6% from 2.4% this year.
However, it has improved the forecast for 2026 to 3.4% from 3.3%, from 3.2% from 3.3%.
“Petroleum prices, adjustments in power rates and higher rice tariffs will increase inflationary pressures,” Remorona said.
Reuters reported that oil prices soared earlier on Thursday over fears that a larger conflict in the Middle East would undermine crude oil supplies. Brent crude rose nearly 1% to $77.40 a barrel, close to its highest level since January.
BSP Deputy Governor Zeno R. Abenoja said the possible increase in oil production, and a slight demand from the global economy, “can help stabilize oil prices below the high prices we have seen in the past year.”
“But even with the latest international oil prices, it’s still relatively lower than what we’ve seen last year,” he said.
Mr Abenoja said the Monetary Commission remained “very vigilant” about the development of the Middle East, as further oil prices could increase inflationary pressures.
Mr. Remolona also reiterated that in the face of global risk aversion, interfering in the money market would be “fruitful”.
“We will not have enough reserves to do this,” he said.
Mr Remorona said that if (peso) depreciation lasted for several weeks, the BSP might have to “intervent more seriously” because this could cause inflation to occur.
The peso was priced at 57.45 p57.45 per dollar on Thursday, completing 47 Centavos from Wednesday’s P56.98. This is the weakest closure of the peso in nearly three months, or since the closure of each dollar on March 26.
Mr Remolona added that the BSP will continue to prioritize inflation in its upcoming policy decisions.
“By the way, we are a central bank targeting inflation, so inflation is still number one.”
He said that since interest rate differences can still be maintained, BSP will not have to lock in with the U.S. Federal Reserve.
Starting from August 2024, the reduction rate of BSP’s three consecutive meetingsStopped at the February meeting. In April, it lowered the ratio by 25 basis points.
prospect
Nicholas Antonio T.Marca, chief economist at Metropolitan Bank and Trust.
“We expect BSP to cut further speed in the coming months, although the adjustment will depend on incoming economic data,” he said.
Miguel Chanco, chief emerging Asian economist at Pantheon macroeconomics, said in an email that the continued relaxation of BSP “is still effortless, especially as inflation comfortably drags into the water below the 2 to 4% target range of BSP.”
“We think the current title dissolution spell has bottomed out, but at least initially, the upcoming mean shift is likely to be very gradual, which keeps inflation down below 2% for the rest of the year,” Mr Chanco said.
He noted that the economy will strive to find upward momentum, and GDP growth could drop from 5.7% in 2024 to 5.3% this year.
“The current underestimation of inflation (1.8% in 2025) and policy rate forecasts for us remain a risk amid the escalation of hostilities between Israel and Iran,” he said.
Mr Chanco expects two more tax rates to be lowered this year before the “indefinite suspension”. – AMCS
