1 month ago
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Keisha Ta-Asan - The Philippine Star
February 15, 2025 | 12:00am
MANILA, Philippines — The Bangko Sentral ng Pilipinas remains on an easing trajectory but opted to pause rate cuts for now as it grapples with heightened global uncertainty, BSP Governor Eli Remolona Jr. said.
Speaking to CNBC, Remolona said the Monetary Board would have cut rates on Thursday, but global uncertainties and risks are not yet fully captured by the central bank’s economic models.
“We thought we needed more time to deepen our analysis of what’s going on,” he said.
“We’re still on an easing cycle. We want to do 25 basis points at a time and we want to do it in the same direction for a while,” the BSP chief said.
According to Remolona, the Monetary Board preferred to pause now and cut rates later rather than continue easing only to reverse course and raise borrowing costs again if risks materialize.
“We’re hedging so that we don’t find ourselves in a situation where we have to reverse ourselves. We want to stay on an easing trajectory,” he said.
“Uncertainty itself is a factor. Investments may be postponed, and there could be hoarding of specific commodities,” he added.
The BSP opted to keep borrowing costs unchanged on Thursday, keeping its key interest rate at 5.75 percent. Interest rates on the overnight deposit and lending facilities remain unchanged at 5.25 and 6.25 percent.
In a separate TV interview on “Money Talks” with Cathy Yang, Remolona said the BSP is closely monitoring the impact of recent global trade policies, particularly those linked to US President Donald Trump, whose tariff plans have raised concerns about global growth.
“The tariff announcements themselves are not so complicated; we just stick them into our models,” Remolona said.
“What’s harder is the environment of uncertainty surrounding those decisions. That itself is a factor and that’s the factor that’s hard to model,” he said.
While the direct effects on the Philippines may be limited, given that only 16 percent of Philippine exports go to the US and a significant portion of trade is in services rather than goods, the BSP chief said that the indirect spillover effects could be more challenging.
The governor said the BSP is taking a cautious approach in the near term, recalibrating its models and comparing notes with other central banks before making further policy moves.
“We should have a better understanding of what’s going on by the time of the next policy meeting,” he said.
The Monetary Board will next meet on April 3 to discuss policy.
Aside from interest rate adjustments, the BSP is also looking at cutting banks’ reserve requirement ratio as a structural move to improve financial system efficiency.
“It’s something we want to do, and it’s not part of our monetary policy stance. It’s a more structural factor, not a cyclical factor,” Remolona said, adding that a cut before April is “possible.”
Jun Neri, lead economist at the Bank of the Philippine Islands, said there is limited room for monetary easing this year as cutting interest rates while the US Federal Reserve is on hold could put downward pressure on the peso.
“A narrowing interest rate differential could lead to capital outflows, while the country’s current account deficit heightens the vulnerability to external shocks. Keeping interest rates steady might be needed to mitigate these risks,” Neri said.
However, the BSP could cut at its June policy review if economic growth continues to disappoint in May.
