Bangko Sentral unexpectedly keeps policy rates steady at 5.75%

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The Bangko Sentral ng Pilipinas' Monetary Board wants to monitor the impact of global policies on the local economy before cutting rates further

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) kept the country’s benchmark interest rate steady at 5.75% in its first policy meeting of 2025.

BSP Governor Eli Remolona Jr. said in a press conference on Thursday, February 13, that the BSP’s Monetary Board felt it was prudent to further monitor the impact of global policies on the Philippine economy before cutting rates further.

The policy rate is one of several tools that the BSP uses to manage inflation. When policy rates are low, banks’ interest rates also remain low. This encourages the public to take out loans and bolsters consumer spending. (READ: How interest rate hikes impact your money and the economy)

The Philippines’ inflation rate averaged at 3.2% in 2024, within the government’s target range of 2% to 4%. But the government failed to meet its target gross domestic product growth, posting just 5.6%.

Several analysts expected the BSP to deliver a 0.25% rate cut in the latest policy meeting. Remolona admitted that the Monetary Board would have cut rates further if it weren’t for what he described as uncertainties in trade policy.

“There are other sources of uncertainty, and we’re not quite comfortable with evaluating the impact of that, the uncertainty itself. And then we don’t quite know what the policies will be. So there are two steps. We have to figure out what the policies will be and we hope the uncertainty over that clears soon,” he said.

US President Donald Trump’s shifting trade and foreign policies are expected to ripple through the global economy.

Trump recently threatened to impose retaliatory tariffs on any country that charges duties on US imports. He also slapped a 25% tariff on steel and aluminum imports.

Remolona clarified that the monetary authority is still in its easing cycle after hiking key interest rates during the pandemic.

The BSP also slightly hiked its risk-adjusted inflation forecast for the year to 3.5% compared to 3.4% in its December policy meeting.

BSP Deputy Governor Francisco Dakila Jr. cited lag effects from the minimum wage hikes made in 2024.

“Taking an average of the adjustments in nominal minimum wages in 2024 across the regional wage boards would amount to about 8.1% on the average. So that has an impact on inflation for this year, in particular towards the latter half of 2025,” Dakila explained.

Dakila said this may also be offset by lowering rice prices. The staple grain logged a deflation rate of -2.3% in January.

Reserve ratio cuts soon?

Remolona said the BSP is still eyeing a reduction in banks’ reserve requirement ratio (RRR) to 5% from the current 7%. However, the central bank governor said the cut may come sooner.

“The timing is still under discussion, but I think it will be fairly soon, maybe sooner than the middle of the year,” he said.

Remolona earlier told reporters that the BSP may slash the RRR in mid-2025.

The RRR is another policy tool that the BSP uses to manage the economy’s health. It is a certain percentage of a bank’s total deposits that must be kept in reserve rather than utilized for loans.

Central banks often cut the RRR to stimulate economic activity as it allows banks to have more funds available for lending.

“The thing about the reserve requirement is it’s more of a structural policy. It’s not something where we’ll lower it and then raise it. It’s unlike the policy rate where it’s more of a monetary policy easing and monetary policy tightening. That’s not the case with the reserve requirement. Once we cut it, we don’t intend to raise it, at least in the foreseeable future,” Remolona said.

The Monetary Board is still considering a 0.50% cut in key interest rates in 2025. It will hold its next policy meeting on April 3. – Rappler.com