Recto sees up to 150bps policy rate cut in next 2 years

The Bangko Sentral ng Pilipinas (BSP) could likely cut rates by 150 basis points in the next two years with inflation expected to slow down, Finance Secretary Ralph Recto, who sits in the Monetary Board, said Monday.

According to Recto, a rate cut in the third quarter is “very much possible,” with a reduction of 150 basis points in the next two years, with inflation expected to slow to within the government’s target range of 2.0% to 4.0% this year and the next.

“It’s possible that you may have a rate cut this year and possibly more rate cuts next year. Surely, I don’t expect any interest rates to go any higher,” he said during the Philippine Economic Briefing in Pasay City.

In its last monetary policy meeting earlier this month, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) kept the benchmark policy rate at 6.5%, the overnight deposit rate at 6.0%, and the overnight lending facility rate at 7.0%, the highest in 17 years since May 2007.

This comes as the central bank’s risk-adjusted inflation outlook for 2024 was revised downward to 3.8%, while the baseline forecast was adjusted to 3.5%, while the 2025 risk-adjusted forecast was set at 3.5%, and the baseline at 3.3%.

“We know your eyes are on the Bangko Sentral because of the stubbornness of inflation. We face the usual supply shocks. These shocks are large and relentless, but I think we’re now beginning to tame inflation,” BSP governor Eli Remolona Jr. said in a recorded speech.

According to BSP senior assistant governor Iluminada Sicat, inflation is expected to be elevated in May and July, but will return to the target range by the end of the year.

“That is precisely the reason why the BSP must be very careful not to bring down the interest rate too early or else we may not be able to address some of the upside risks that we are seeing in the future,” she said.

“Eventually, once all of these actions of the BSP, together with the non-monetary policy of the national government in addressing the supply side, we will be able to bring back inflation to the target range for 2024 and 2025,” she added. — BM, GMA Integrated News