Faster Jan inflation narrows room for major BSP rate cut
The space for further interest rate cuts remains for the Bangko Sentral ng Pilipinas (BSP), though the faster January inflation may have narrowed the room for jumbo easing moves.
In a note to clients, Miguel Chanco, economist at Pantheon Macroeconomics in London, said that while he is sticking to his view that the BSP may cut the policy rate by another quarter point at the Monetary Board’s meeting on Feb. 19, the chances of a larger reduction are now slim.
This, after core inflation, a measure of price pressures that strips out the volatile costs of food and energy, sped up to an 18-month high of 2.8 percent in January from 2.4 percent in the preceding month.
Meanwhile, headline inflation rose to an 11-month high of 2 percent—ending 10 consecutive months of readings below the official 2 to 4 percent target band.
“A larger 50-basis point move now looks unlikely to enter the discussion in spite of the abysmal fourth quarter gross domestic product print, considering the big jump up in core inflation,” Chanco said.
Since beginning its easing cycle in August 2024, the BSP has lowered the benchmark policy rate that guides bank lending costs by a total of 2 percentage points to 4.5 percent.
Anticorruption drive
BSP Governor Eli Remolona Jr. said the central bank was ready to act if it could help spur demand. This was after the disappointing fourth-quarter economic growth rate of just 3 percent.
The weak outturn pulled average growth for 2025 to 4.4 percent, below the government’s 5.5 percent to 6.5 percent target. Officials and analysts attributed the slowdown to a mix of climate-related disruptions and the Marcos administration’s sweeping anticorruption drive, which curbed government spending and weighed on business and consumer confidence.
As it is, the BSP made clear that its easing cycle was approaching its conclusion, saying any further reductions in borrowing costs would be “limited and guided by incoming data.”
Separately, economists at Metrobank said the window for easing was still open—for now.
“The BSP will conclude its current easing cycle with a cumulative 50 basis points worth of cuts this year, bringing the target reverse repurchase rate down to 4 percent by year-end,” they said.
******
Get real-time news updates: inqnews.net/inqviber
