BSP: Policy rate cut in August 'somewhat more likely than before'

Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. on Thursday took a more dovish stance as he said a policy rate cut in August was “somewhat more likely than before.” 

He said the rates could be eased by 50 basis points this year, with inflation expected to come in slower than initially expected.

Remolona said the Monetary Board kept the target reverse repurchase (RRP) rate at 6.5%, the highest in 17 years since the benchmark rate was kept at 7.5% in May 2007, for the sixth straight meeting. The overnight deposit rate was kept at 6.0%, and the overnight lending facility rate at 7.0%.

This developed as the risk-adjusted inflation outlook for the year was revised downward to 3.1% from the 3.8% projection in May, and to 3.1% for 2025 from the 3.7% in 2025. The baseline forecast was downgraded to 3.3% from 3.5% for 2024, and to 3.1% from 3.3% for 2025

“The balance of risks to the inflation outlook has shifted for 2024 and 2025 due largely to the impact of lower import tariffs on rice under Executive Order 62,” Remolona said in a briefing in Manila City.

Under Executive Order 62, President Ferdinand “Bongbong” Marcos Jr. modified the import duty rates of various commodities, including rice, which the central bank expects would bring down headline inflation by 12 basis points, and ease inflation by 14.8 percentage points over 12 months.

“The Monetary Board also anticipates price pressures to ease further in the second half of the year with the implementation of EO62 as well as Administrative Order 20. If sustained, an improvement in the inflation outlook would allow more scope to consider a less restrictive monetary policy stance,” Remolona said.

“However, uncertainty in the external environment calls for some caution against potential spillovers, including those in the financial markets,” he added.

However, Remolona said that higher prices of food items other than rice, transport charges, and electricity rates could continue to cause upward risks to inflation.

“Looking ahead, the BSP will ensure that monetary policy settings remain in line with its primary mandate to safeguard price stability conducive to sustainable economic growth,” Remolona said.

The governor said a rate cut was “somewhat more likely” in August with a 25-basis point cut in the third quarter, to be followed by another 25-basis point cut in the fourth quarter for a total of 50 basis points for 2024.

“I think the last time, I said we’re still hawkish but less so. We’re basically in the same position, somewhat more dovish than before,” he said.

Remolona in May hinted at the possibility of easing rates in August, as he said the central bank was then “less hawkish” with the latest economic growth data pointing to a “largely intact” domestic output growth in the medium term.

The central bank has raised key policy rates by 450 basis points since May 2022, in a bid to tame inflation, which average 6.0% in 2023, higher than the target range of 2.0% to 40%. —NB, GMA Integrated News