By means of Luisa Maria Jacinta C. Jocson, Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) continued its activities easing cycle with a 25 basis points (bp) interest rate cut for the second time in a row, signaling the prospect of further cuts.
The Monetary Board cut the target reverse repurchase (RRP) rate by 25 basis points on Wednesday, taking the policy rate to 6% from 6.25%.
This was also in line with the expectations of 16 of the 19 analysts surveyed in a Business world poll from last week.
The rates on overnight deposits and credit facilities were also reduced to 5.5% and 6.5% respectively.Feffective today (October 17).
The central bank has now cut borrowing costs by a total of 50 basis points since it started its easing cycle in August with a 25 basis point cut. FFirst interest rate cut since November 2020.
BSP Governor Eli M. Remolona Jr. said Wednesday that the Monetary Board’s decision was due to its assessment that “price pressures remain manageable.”
“On balance, the within-target inflation outlook and well-anchored inflation expectations remain supportive of the BSP’s shift to a less restrictive monetary policy,” he said.
“Nevertheless, the monetary authority will continue to closely monitor emerging upside risksFincluding geopolitical factors.”
However, the BSP chief said the risks going forward are balancedFThe outlook for next year to 2026 has shifted upward, citing expectations of higher electricity rates and minimum wages outside Metro Manila.
The central bank has lowered its baselineFexpected to 3.1% (from 3.4%) for 2024. On the other hand, it increased the inflowFprojection to 3.2% (from 3.1%) for 2025 and 3.4% (from 3.2%) for 2026.
The risk-adjusted inflation forecast was also lowered to 3.1% (from 3.3%) for 2024. The projections for 2025 and 2026 were increased to 3.3% (from 2.9%) and 3.7% respectively ( of 3.3%).
BSP Assistant Governor Zeno Ronald R. Abenoja said the relevant horizon to consider is the inFprospects for the period 2025 to 2026.
“For 2025 and 2026, we see a slightly higher inflation average, but still within target, and the slight increase is due to higher global oil prices, which we have also observed in recent weeks, and some positive base effects in the economy. the next twelve months,” he said.
Mr Abenoja said thisFRates could be slightly below the midpoint of the BSP’s 2-4% target for the remainder of the year. Ffirst half of 2025.
“Then we could see inflation picking up in the second half of 2025, but still within the target range,” he added.
Headline inflation fell to 1.9% in September from 3.3% in August, the slowest increase in more than four years, although Mr Remolona noted that the slower rise during the month was mainly due to headline inflation.Ffects.
In the first nine months head onFaverage 3.4%.
Meanwhile, Mr Remolona also said economic growth is expected to remain strong. Gross domestic product (GDP) averaged 6% in the first half, which is at the lower end of the government’s full-year target of 6-7%.
“This againFoffers an improved outlook for household income and consumption, investment and government spending, supported by the start of the monetary easing cycle in August and the announced reduction in reserve requirements in October,” he added.
‘BABY STEPS’
At the Monetary Board’s final meeting for the year on December 19, the BSP head signaled the possibility of another 25 basis point cut.
If this is achieved, it would bring the reference interest rate to 5.75% at the end of 2024.
However, Mr Remolona said a 50 basis point cut in December was “unlikely”.
“What 50 basis points would allow would be a scenario where we see a hard landing, but otherwise that would be too aggressive a cut,” he said.
For 2025, Mr Remolona said it was also possible to implement a total of 100 basis points of interest rate cuts.
“An additional 100 basis points (after the cuts we will have made in 2024) would be somewhat on the mild side. It is possible, but somewhat moderate,” he said.
The central bank will also opt for a more ‘measured approach’ in its easing.
“If we rule out a hard landing, then, as I said, we prefer to take small steps when it comes to adjusting the policy rate. That means 25 basis points at a time, but not necessarily every quarter, or not necessarily every meeting,” Mr. Remolona said.
MORE CIRCUMSTANCE
Meanwhile, analysts also expect further interest rate cuts for the rest of the year and until 2025.
Miguel Chanco, chief economist at Pantheon Macroeconomics, said he sees “many more interest rate cuts coming.”
Although head inFIf the economy were to breach the 2% mark in October, it would not deter the BSP from continuing its easing path, he said in a commentary.
“That said, we expect indoorsF“We intend to continue holding this lower bound for the foreseeable future, barring any unexpected shocks, leaving the door wide open for more successive rate cuts,” Mr Chanco said.
“Under our current forecasts, average annual inflation will fall from an estimated 3.2% this year to 2.4% in 2025, as the headline inflation rate is anchored by still declining fundamentals in the economy.FThis reflects the relatively slow growth of the economy,” he added.
Harry Chambers, assistant economist at Capital Economics, also said inflationary pressures remain weak.
“Falling food price inflation and slower growth should keep the economy containedFLatin,” he says in a report.
Mr Chambers said further gradual easing was likely in coming quarters.
“The economic backdrop offers room for looser monetary conditions. GDP growth slowed in the second quarter due to declines in both private consumption and exports,” he said.
“We expect growth to remain subdued due to a combination of tighter growth rates Feconomic policies and weak export demand,” he added.
Mr Chanco said the release of third-quarter economic data will be crucial for the BSP’s next monetary policy decision.
Third quarter GDP will be announced on November 7.
“The third quarter GDP report, due in early November, is likely to create a greater sense of urgency among the Governing Council as annual growth is likely to decline sharply from the 6.3% pace in the second quarter based on the basic figures.Ffects are becoming quite unfavorable,” he said.
For its part, Pantheon Macroeconomics sees the possibility of cuts of 50 basis points.
“We continue to believe that the pace of easing will increase to 50 basis points each time from the December meeting until the benchmark interest rate falls to a final level of 4% by the middle of next year,” Mr Chanco said.
Meanwhile, Capital Economics expects a 25 basis point rate cut in December.
“Our 4.75% interest rate forecast for end-2025 is milder than consensus,” Chambers said.