By Luisa Maria Jacinta C. Jocson, A reporter
BANGKO SENTRAL ng Pilipinas (BSP) cut its key rate for the third consecutive meeting on Thursday but signaled that a few cuts are possible in 2025.
The Monetary Board on Wednesday cut its target repo rate by 25 basis points (bps), bringing the key rate to 5.75% from 6%.
This was also in line with the expectations of 13 of the 16 analysts surveyed in a BusinessWorld poll last week.
Rates for overnight deposits and borrowing facilities have also been reduced to 5.25% and 6.25%, respectively.
The central bank has now cut rates by 75 bps this year since it began tapering in August.
“Looking forward, the Monetary Board will maintain a moderate approach to easing monetary policy to ensure price stability coupled with sustainable economic growth and employment,” said BSP Governor Eli M. Remolona, Jr.
He said inflation is expected to remain within the target range of 2-4% during the policy period.
“For the balance, the domestic view of the inflation target and the expectations of the core inflation continue to support the BSP’s shift to a less restrictive monetary policy,” he said.
However, Mr. Remolona said the balance of risks to inflation continues to be on the upside, citing “possible changes in transportation costs and electricity prices.”
“The impact of low import taxes remains very lowinflation risk,” he added.
The central bank raised its initial inflation forecast to 3.3% in 2025 (from 3.2%) and 3.5% in 2026 (from 3.4%). This year, it also upgraded its forecast to 3.2% from 3.1% previously.
Meanwhile, risk-adjusted forecasts have also been raised to 3.2% this year (from 3.1%) and 3.4% in 2025 (from 3.3%). The risk-adjusted projection for 2026 is kept at 3.7%.
Both the baseline and adjusted risk forecasts remain within the BSP’s target band of 2-4%.
“Nevertheless, the monetary authority will continue to carefully monitor the emerging risks of inflation, especially geopolitical factors,” said Mr. Remolona.
Meanwhile, the BSP also expects domestic demand to “remain strong but subdued.”
“Private domestic spending is expected to be supported by the reduction of inflation and the improvement of labor market conditions. However, potential risks in the external environment may be seen and dampen the economy and market sentiment,” he said.
STILL ON A ‘SOLID SEAT’
Asked how much the BSP will cut in 2025, Mr. Remolona said: “In our discussion today, there was a feeling that maybe 100 bps above 2025 would be too much, but also zero would be too little.”
He previously said they could cut rates in the 100-bp range by 2025, though not at every meeting or every quarter.
“Even at 75 bps, in all our measures, we’re still somewhat tight. That to us is a form of insurance. “The reason we are reducing the children’s stairs is because we are not really sure about inflation,” he said.
“We are still worried that inflation may start again. By cutting baby steps, at this time, we are still strong. That is a kind of insurance against possible inflation.”
If the data is not too “surprising”, the Monetary Board can continue its cycle of rate cuts, said Mr. Remolona.
“If there is a big surprise, we may change the way of monetary policy. But if the surprises are small enough there’s no reason to really change the way we’re going.”
The peso
Meanwhile, Mr. Remolona said the BSP is monitoring the peso and its potential impact on inflation.
“We are worried about passing. Passing is often important if there is enough depreciation. So there is a kind of limit and we are still trying to adjust our measurements of that limit,” he said.
The peso closed at P59 per dollar on Thursday, weakening by one cent from its close of P58.99 on Wednesday.
So far this year, the local currency has fallen sharply three times, including Nov. 26 and Nov. 21.
Analysts say the expected inflation target will allow the BSP to continue to improve next year.
“The headline rate is currently just above the low rate of 2%, and we think that it will continue to achieve this level in the next 12 months – without unexpected shocks to prices – to provide the (Currency) Board more room to ease policy,” said the Pantheon Emerging Asia official. Economist Miguel Chanco in the report.
Pantheon expects annual inflation to slow to 2.4% next year from 3.2% this year. It also expects a rate cut of 100 bps next year.
“The central bank may have room to cut interest rates in the first half of 2025, supported by a positive inflation outlook,” said Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr.
“Barring any unexpected supply shocks, inflation is likely to remain at the BSP’s target level next year.”
Mr. Neri also expressed expectations that the US Federal Reserve’s latest policy will be slightly reduced again.
“The behavior of USD/PHP may remain manageable if the BSP’s pace of rate cuts is reasonably aligned with the Fed’s approach,” he added.
The Fed on Wednesday cut interest rates but hinted at fewer rate cuts in 2025.
However, Mr. Neri noted that the BSP is unlikely to cut rates aggressively next year as “risks in global prices could derail moderate monetary easing.”
The Monetary Board could cut rates by as much as 50 bps next year, he said.
“While the first half of the year may present opportunities, cutting rates in the latter half could be a major challenge, as the Federal Reserve’s outlook may change in response to President Trump’s potentially deflationary policies.”
“In a worst-case scenario, higher prices and mass layoffs could cause inflation in the US, which could force the world’s central banks to focus on monetary tightening,” he added.
Source link
