1 month ago
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The Bangko Sentral ng Pilipinas’ (BSP) Monetary Board has put on hold its benchmark rate of 5.75 percent during its first policy meeting this year on Thursday, Feb. 13, citing the rising policy uncertainty such as trade and tariffs, and its impact on global growth and inflation.
BSP Governor Eli M. Remolona Jr. said they will continue to pursue their “measured shift to less restrictive” policy stance while waiting for their previous rate cuts to do their work of stimulating the economy this year and in 2026.
“Domestic growth prospects continue to be firm. However, uncertainty over global economic policies and their impact on the domestic economy has increased significantly,” he said in a press briefing after the monetary policy meeting.
For the next policy meeting on April 3, Remolona gave mixed signals. On the one hand, he said they will consider keeping the rates steady again, depending on the data they will see. But he also said that a rate cut will also be on the table but it will be a measured reduction.
“When we say measured, that basically means 25 basis points (bps) at a time. It doesn’t mean 25 bps each time. When we do a cut, it will be just 25 bps, at least we hope so. I hope we don’t need to cut more than that,” he said.
Some economists expected the BSP to ease the target reverse repurchase (RRP) rate on Thursday, given the slow growth and within target-range inflation at the end of 2024.
But Remolona said the uncertainty surrounding inflation and growth has convinced them to leave the RRP rate unchanged. He said that timing and magnitude of further policy rate reductions require prudence, and they should “await further assessments of the impact of global policy uncertainty and the potential effects of the actual policies.”
Meanwhile, the BSP chief said their current models that assess policy settings against inflation and growth do not accurately predict the outcome of the global uncertainties.
“I think we need a little bit of time to recalibrate our models. We are facing an unusual phenomenon in terms of the uncertainty of policies that will be put in place. Our models don’t capture those things very well so we have to re-do our models. The uncertainty itself has an effect and that is not in our models,” said Remolona.
He added “Normally, we would have cut further, but something has changed. That thing that has changed is the uncertainty of what is going on globally, especially the uncertainty over trade policies, has changed. But there are other sources of uncertainty and we’re not quite comfortable with evaluating the impact of that uncertainty.”
Remolona said there are two steps that BSP will have to figure out. First, what the policies will be, and second, when will the uncertainty clear or be resolved.
The BSP is also considering further reducing banks’ reserves requirement ratio or the RRR.
Remolona said they will likely cut the RRR from seven percent to five percent this year, or about 200 bps. He said the timing “is still under discussion but I think it will be fairly soon … sooner than the middle of the year.” Both the RRR cut and rate cut help stimulate growth.
After leaving the key rate on hold, the BSP revised its risk-adjusted inflation forecast to 3.5 percent for 2025 versus its 3.4 percent estimate last Dec. 19. The risk-adjusted forecast for 2026 remains at 3.7 percent.
BSP Deputy Governor Francisco G. Dakila Jr. said the risks to the inflation outlook have become broadly balanced for 2025 and 2026. He noted though that upside pressures may emanate from the utilities sector while the impact of lower import tariffs on rice continue to be a downside risk to the inflation outlook.
“We’re seeing some lag impacts coming from minimum wage adjustments that we saw in 2024,” he said, noting that the 8.1 percent average in minimum wages last year will have an impact on inflation for this year, especially towards the latter half of 2025.
“We’re also seeing base effects on easing commodity prices in 2024. Again, exerting some impact in 2025, in the second half,” said Dakila.
He also said that there will be a moderate uptick in inflation in the second half of this year but it will go back to the midpoint of the two percent to four percent target range in 2026.
