Bangko Sentral ng Pilipinas (BSP) on Thursday, December 19, has reduced its policy rate for the third time this year as part of the central bank’s ongoing efforts to stimulate economic growth while keeping inflation within its target range.
BSP Governor Eli Remolona announced a 25-basis-point reduction in its key interest rate, bringing the benchmark rate to 5.75 percent. Hence, the interest rates on the overnight deposit and lending facilities were also adjusted to 5.25 percent and 6.25 pecent, respectively, effective December 20. This brings the total rate reduction since August to 75 bps.
Despite the latest rate cut, Remolona signaled a measured approach to future monetary easing. Responding to questions about next year’s policy direction, he acknowledged that the previously suggested 100-basis-point reduction might be excessive given the current data.
“I think maybe at this stage, given our forecasts and given the data, cutting 100 basis points next year may be a bit much. We’ll have to see what the data say,” Remolona told reporters in a briefing.
“The reason we’re cutting in baby steps is because we’re not absolutely sure about inflation. We’re still worried that inflation might start to rise again,” he added.
Addressing concerns over the Philippine peso, which has shown signs of depreciation against the U.S. dollar, Remolona emphasized that the BSP does not target specific exchange rate levels. However, he acknowledged that sustained depreciation could affect inflation.
“For now, the effect has been modest, but at some point, if the peso keeps depreciating, it begins to have an impact,” Remolona said.
The Monetary Board highlighted that domestic demand is likely to remain firm, supported by easing inflation and improving labor market conditions. However, downside risks from the global environment, including geopolitical factors, could temper economic activity.
Looking ahead, the BSP will closely monitor data to guide its monetary policy decisions. “If the data are not too surprising, then we will continue easing. But if there’s a big surprise, we may adjust the direction,” Remolona said. (TCSP)
