BSP delivers 25 bps rate cut, says same reduction possible in Dec.

The Bangko Sentral ng Pilipinas (BSP) on Wednesday decided to cut key policy rates by 25 basis points and hinted at further easing in December.

The target reverse repurchase (RRP) rate will be reduced to 6.0%, the overnight deposit rate to 5.5%, and the overnight lending facility rate to 6.5% effective Thursday, October 17.

This follows the 25-basis-point cut in August, which was the first reduction in nearly four years and the first adjustment since the off-cycle hike in October 2023.

“The Monetary Board’s decision is based on its assessment that price pressures remain manageable,” BSP Governor Eli Remolona Jr. told reporters in a briefing in Manila City following the Monetary Board meeting.

This comes as the central bank downgraded its risk-adjusted inflation forecast for 2024 to 3.1% from 3.3% in August, citing the slowdown seen in the last two months.

Inflation clocked in at 1.9% in September, marking the slowest in over four years, amid a slowdown of growth in food and transportation costs. It stood at 3.3% in August.

Lower policy rates would mean those with bank savings and investments would be given lower interest rates earned on time deposits, fixed income investments, and securities, among others, effectively freeing up more cash.

Remolona also hinted at the possibility of another rate cut in December, with a 25-basis-point cut more likely as he said a 50-basis-point cut would be in a “hard landing” scenario.

“On balance, the within-target inflation outlook and well-anchored inflation expectations continue to support the BSP’s shift toward less restrictive monetary policy,” Remolona said.

“Nonetheless, the monetary authority will continue to closely monitor the emerging upside risks to inflation, including geopolitical factors,” he added.

According to Remolona, a 100-basis point cut is still possible for 2025, even as the risk-adjusted inflation forecast for the year was upgraded to 3.3% from 2.9% previously.

“If you rule out a hard landing, then, as I have said, we prefer to take baby steps in terms of adjusting the policy rate, meaning 25 basis points at a time, but not necessarily every quarter,” he said.

The risk-adjusted inflation forecast for 2026 was also hiked to 3.7% from 3.3% previously.

Similar adjustments were made to the baseline forecasts—2024 at 3.1% from 3.4%, 2025 at 3.2% from 3.1%, and 2026 at 3.4% from 3.2%.

“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,” Remolona said.

“Meanwhile, downside factors continue to be linked to the impact of lower import tariffs on rice,” he added. — VBL, GMA Integrated News