BSP cool to drastic rate cuts

The Bangko Sentral ng Pilipinas (BSP) said it would continue its “measured” rate cutting cycle even as inflation quickened in October, still keeping the door shut on aggressive easing as the pace of price growth remains consistent with the outlook of monetary authorities.

“The latest inflation outturn is consistent with the BSP’s assessment that inflation will continue to trend closer to the low end of the target range over the succeeding quarters,” the BSP said in a statement.

“The Monetary Board will maintain a measured approach in its easing cycle to ensure price stability conducive to sustainable economic growth and employment,” it added.

With inflation sitting comfortably within its target range, the BSP is now at a point where it has to relax monetary conditions amid expectations that the economy may grow below target this year.

But unlike in the United States where a slowing job market had prompted the US Federal Reserve to deliver a jumbo 50-bp cut in September, the BSP entered its easing era in August with the traditional quarter point reduction to the policy rate.

Gradual cuts

In October, the BSP cut the policy interest rate by a quarter point again to 6 percent, with Governor Eli Remolona Jr. dropping clear hints of additional—but gradual—easing moves until the key rate falls to 4.5 percent by the end of 2025.

Remolona said a 25-basis-point cut at the Dec. 19 meeting of the Monetary Board was “possible.” But he said an outsized half-point reduction was “unlikely” to happen. Overall, the BSP chief did not rule out the possibility of additional cuts cumulatively worth 100 bps in 2025.

In a commentary, Emilio Neri Jr. lead economist at Bank of the Philippine Islands, said recent volatility in the markets “highlights the need for prudence when it comes to rate cuts,” Neri said.

Prudent action

“While inflation forecasts allow room for a cut, aggressive action may not be prudent in the current climate. Global and domestic supply shocks can alter the outlook for inflation quickly, making a cautious approach to rate cuts more suitable to maintain stability,” he added.

Separately, analysts at Chinabank Research said inflation would remain below 3 percent this month and the next due to favorable base effects, lower rice tariffs and “benign price pressures in other commodity groups.”

“Hence, we think the BSP has room to continue lowering interest rates at its next policy meeting in December,” they said.