Remolona sees slower easing, another jumbo RRR cut in ’25
Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. hinted at fewer interest rate cuts this year to give the economy an insurance against potential price shocks, all while signaling another jumbo cut to bank’s cash reserves to further support growth.
Speaking to reporters on Saturday, Remolona said it was possible for the Monetary Board (MB) to deliver two quarter-point reductions to the policy rate this year—one cut each in the first and second half of 2025.
That was less than the 100-basis point (bp) cumulative cuts for 2025 that the BSP chief had signaled previously, as he now believes that there’s no longer a need for such a magnitude of easing despite the disappointing gross domestic product (GDP) growth last year.
At the heart of Remolona’s shallower rate outlook is the belief that the economy is not headed toward a hard landing, and that the country must have a hedge against price risks that may cause an inflation flare-up. But compared to the hawkish US Federal Reserve—which pointed to 50 bps of easing for 2025—Remolona said the Philippines does not need that much of an insurance.
“I think we will still be within our [inflation] target range,” he said.
But that doesn’t mean that the central bank boss is not concerned about the weaker-than-expected 5.6 percent growth in 2024.
To stimulate the economy, Remolona said the BSP might also deliver another 200-bp cut to the reserve requirement ratio (RRR) of big banks, which might happen in the “middle of the year.”
Standby funds
That move would bring down the ratio of deposits that banks must set aside as standby funds to 5 percent from the current level of 7 percent, giving them more cash to lend at a time that the BSP is on easing mode.
“The timing [of the RRR cut] matters. Because we are also cutting the policy rate,” he said.
“They both stimulate the economy. But the nice thing about the reserve requirement [adjustment] is it affects both the deposit rate and the lending rate… So, it should raise the deposit rate a little bit if you cut the reserve requirement while lowering the loan rates,” he added.
Last year, the BSP cut the benchmark rate that banks use as a guide when pricing loans by a total of 75 bps to 5.75 percent. Remolona said another 25-bp reduction might happen at the Feb. 13 meeting of the MB in a bid to support growth.
“Right now, we have a kind of a negative output gap. We’re growing at a little bit below capacity,” he said.
“If it becomes more negative, it would call for more easing. But not by itself,” he added.
