Time for BSP to pause cycle of monetary easing—think tank
The Bangko Sentral ng Pilipinas (BSP) may need to hold off on additional rate cuts to preserve policy flexibility against potential external shocks and assess the effects of earlier easing measures, according to New York-based think tank GlobalSource.
In a commentary, GlobalSource economists Diwa Guinigundo and Wilhelmina Manalac said that although softening inflation and slowing growth might justify further rate reductions, the nature of the economic slowdown and how markets perceive policy actions would be equally important.
To be sure, Guinigundo and Manalac, both former high-ranking officials of the local central bank, said that a pause does not imply a shift to tight monetary policy.
“What a pause does is allow the BSP to assess whether the initial rate cut is sufficient to support demand without generating adverse confidence or exchange-rate effects,” they explained.
“Holding rates steady after an initial cut reinforces the message that decisions are guided by evolving data and risk balance—not by mechanical easing rules,” they added.
“This approach also preserves policy space. With global financial conditions still uncertain and external shocks possible, retaining ammunition has value.”
President Marcos’ economic team earlier signaled that official macro targets may need to be revised to account for the fallout from an escalating antigraft drive.
To “compensate” for the effects of the graft fallout, the BSP slashed the overnight borrowing rate, guiding bank lending costs by another quarter point to 4.5 percent at the Monetary Board’s final policy meeting for this year.
This brought the cumulative reductions since the easing cycle started in August last year to 2 percentage points.
Governor Eli Remolona Jr. had said any further rate easing next year—if they come at all—would likely be limited to a single 0.25 percentage point reduction.
The BSP chief also said the central bank would still avoid outsized cuts and off-cycle decisions that may stir market concerns about the economy.
In their note, Guinigundo and Manalac said restraint in further rate cuts could help avoid the perception that monetary policy was being used to offset fiscal or institutional weaknesses.
“That perception, if allowed to take hold, could ultimately undermine both price and financial stability,” they stressed. “Sometimes, the most effective policy signal is not movement—but measured restraint.”
