BSP finishes 2024 with third rate cut
The Bangko Sentral ng Pilipinas (BSP) on Thursday capped 2024 with a third consecutive reduction to the policy interest rate, with Governor Eli Remolona Jr. keeping his intention to take “baby steps” when it comes to easing amid persistent price pressures.
At its final policy meeting for the year, the powerful Monetary Board (MB) decided to trim the overnight borrowing rate by 25 basis points (bps) to 5.75 percent.
This brought the cumulative rate reductions this year to 75 bps, following two quarter-point cuts each at the August and October meetings of the MB.
The latest move was widely expected by the market, including the economists polled by the Inquirer last week.
At the spot foreign exchange market yesterday, the peso revisited the record-low level of 59:$1 for the third time this year after the announcement of the BSP.
Zooming out, it was a busy week for central banks in the region and beyond, with neighbors Thailand and Indonesia both keeping rates steady.
Hours before the BSP’s decision, the US Federal Reserve delivered another quarter point cut and indicated fewer cuts next year, causing stock markets to tumble.
Inflation uptick
What convinced the BSP to stay on rate-cutting mode was a mild 2.5 percent uptick in inflation in November, and economic growth that significantly slowed in the third quarter.
By bringing down the benchmark rate that banks typically use as a guide when pricing loans, the BSP wants to spur consumption—a major growth driver—and investments.
At a press conference, BSP Governor Eli Remolona Jr. said the central bank will continue taking baby steps as he admits that monetary authorities were still worried about inflation.
“I think in our discussion today, there was a sense that 100 bps over 2025 would be too much, but zero would also be too little,” Remolona said.
“Even with the 75-bp (cuts so far), we’re still somewhat on the tight side. That for us is a kind of insurance. The reason we’re cutting in baby steps is because we’re not absolutely sure about inflation,” he added.
In its statement after the meeting, the MB said inflation is projected to “stay within the target range over the policy horizon” despite risks from possible transport fare hikes and higher energy prices. The Board added that domestic demand is “likely to remain firm but subdued.”
More cuts
Emilio Neri Jr., lead economist at Bank of the Philippine Islands, said the BSP may have room to further trim lending rates next year.
“However, we continue to subscribe to the view that the BSP will avoid cutting rates aggressively in 2025 as global price risks could thwart outsized monetary easing actions,” Neri said.
”Considering these upside risks to inflation, we continue to see the BSP reducing the RRP by a mere 50 basis points as a base case for 2025,” he added.
