The Bangko Sentral ng Pilipinas’s (BSP) Monetary Board announced a 25-basis point reduction in its key interest rate effective October 17, as inflation pressures continue to ease in the country.
“The Monetary Board decided to reduce the BSP’s target reverse repurchase rate by 25 basis points to 6 percent,” said Governor Eli Remolona during a press conference on Wednesday, October 16, 2024.
“The interest rates on the overnight deposit and lending facilities were accordingly adjusted to 5.5% and 6.5% respectively,” he added.
The BSP’s decision was largely influenced by the downward revision in its inflation forecast for 2024. The central bank now expects inflation to average 3.1% this year, down from its previous estimate of 3.3%.
The BSP has been gradually easing its monetary policy since August in response to slowing inflation. The central bank’s latest move is expected to boost the economy by lowering borrowing costs for businesses and consumers.
However, Remolona cautioned that risks to the inflation outlook for 2025 and 2026 have increased slightly due to potential adjustments in electricity rates and higher minimum wages.
“Nevertheless, this outlook is safeguarded by well-anchored inflation expectations,” Remolona added.
The BSP Governor also noted that the domestic economy is expected to continue its strong growth trajectory, supported by improved prospects for household income, consumption, investments, and government spending.
With the latest rate cut, the BSP aims to create a more conducive environment for economic growth and employment.
However, the central bank remains vigilant about potential upside risks to inflation, particularly those stemming from geopolitical factors.
“Looking ahead, the Monetary Board will maintain a measured approach to the easing cycle to ensure price stability conducive to sustainable economic growth and employment,” Remolona said.
In the same briefing, BSP has revised its inflation outlook for 2025 at 3.3 percent and 2026 at 3.7 percent, from the previous outlook of 2.9 percent and 3.3 percent, respectively.
This comes despite recent downward revisions to the 2024 forecast to 3.1 percent from 3.3 percent due to slower-than-expected rice inflation and other commodities.
For 2025 and 2026, Abenoja noted that the inflation outlook remains within the BSP’s target range of 2-4 percent. The slight increase in the forecast is primarily driven by expected higher global oil prices and positive base effects in the coming months.
However, the BSP anticipates that this upward pressure will be partially offset by lower global oil prices as projected by international financial institutions.
“We believe that the Philippine economy is well-positioned to navigate the current global challenges and maintain price stability,” Abenoja stated. “The BSP will continue to closely monitor developments and adjust its monetary policy as necessary to achieve its inflation targets.” (TCSP)
