BSP hints at 50bps rate cut, 200bps reserve requirement cut in 2025

BAGUIO CITY — Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. on Saturday hinted at the possibility of easing rates further by another 50 basis points this year, and reducing the reserve requirement of big banks by 200 basis points.

According to Remolona, he is looking at a monetary policy easing of an initial 25 basis points in the first half of the year, and another 25 basis points in the second half, with a pause between the two adjustments.

“Not every meeting will see a policy rate decline,” he told reporters, with the Monetary Board now set to meet bimonthly, trimming down the frequency of its policy-setting meetings to six from seven in 2024.

Remolona earlier said further policy easing is on the table for the policy meeting in February, with the Monetary Board looking at certain factors such as the recently released economic growth figures.

The Philippine economy expanded by 5.2% in 2024, below the downward revised target range of 6.0% to 6.5% set by the inter-agency Development Budget Coordination Committee (DBCC). This is the second straight year that the country failed to reach its goal.

Remolona noted, however, that for the full year, 75 basis points and 100 basis points may be too much, as he said inflation is expected to settle within the target range of 2.0% to 4.0% in 2025.

“Central banks around the world have learned to do things gradually, except when there’s an impending hard landing. Hard landing usually means a cut of more than 25 basis points — 50 (basis points), and a hundred (basis points),” he said.

“We don’t see a hard landing in the near future… If we do our job, there should be no hard landing, so there’s no need for a hundred-basis-point rate cut,” he added.

Remolona on Saturday also hinted at the possibility of reducing the reserve requirement ratio, the amount of cash a bank must hold in its reserves against deposits, by 200 basis points in 2025 starting in the middle of the year by June or July.

“Pinag-uusapan pa namin eh. Pero, 'yung reserve requirement? Sana bumaba ng hanggang 5 this year. (We are still discussing. But the reserve requirement? Hopefully it will go down to 5 [percent] this year.) But when this year, we'll see,” he said.

“That’s the amount that we’re discussing, 200 basis points, so from 7 (percent) to 5 (percent) for the big banks,” he added.

Currently at 7.0% for big banks, the country’s reserve requirement is said to be among the highest in the world. It is at 4.0% for digital banks, 1.0% for thrift banks, and 0% for rural and cooperative banks. —KG, GMA Integrated News