BSP continues monetary easing with 25-basis-point cut

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Thursday decided to continue its policy easing for the third consecutive meeting, bringing down key policy rates by another 25 basis points.

The target reverse repurchase (RRP) rate will be reduced to 5.75%, the overnight deposit rate to 5.25%, and the overnight lending facility rate to 6.25% effective Friday, December 20.

This follows the 25-basis-point cut in October, and another 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.

This comes even as the central bank now expects inflation to average 3.2% this year, higher than the 3.1% outlook reported in October, to take into account weather disturbances recorded in the past two months.

“The balance of risks to the inflation outlook continues to lean to the upside due largely to potential upward adjustments in transport fares and electricity rates. The impact of lower import tariffs on rice remains the main downside risk to inflation,” BSP governor Eli Remolona Jr. said at a briefing in Manila City.

The Manila Electric Company (Meralco) hiked the household electricity rate for December by 10.48 centavos per kilowatt-hour (kWh), bringing the overall rate for a typical household to P11.9617 per kWh.

“On balance, the within-target inflation outlook and well-anchored inflation expectations continue to support the BSP’s shift toward less restrictive monetary policy. Nonetheless, the monetary authority will continue to closely monitor the emerging upside risks to inflation, notably geopolitical factors,” Remolona said.

“Looking ahead, the Monetary Board will maintain a measured approach to monetary policy easing to ensure price stability conducive to sustainable economic growth and employment,” he added.

100BPS cut ‘too much’ for 2025

Moving forward, the central bank also hiked its inflation forecasts for 2025 — the risk-adjusted forecast to 3.4% from 3.3% previously, and the baseline forecast to 3.3% from 3.2% previously.

Remolona, who has continuously said the BSP is still in its easing cycle, said further cuts are expected next year, with 100 basis points being “too much,” but 0 basis points would also be “too little.”

“I think if the data are not too surprising, then we will continue to ease. If there’s a big surprise then we will change direction of monetary policy but if the surprises are small, there’s no reason to really change the direction we’re taking,” he said.

“The reason we’re cutting in baby’s steps, we’re not sure about inflation. We’re worried inflation might still rise again. By cutting in baby steps, at this point we’re still quite tight,” he added. — RSJ, GMA Integrated News