1 month ago
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While a possibility of a 75 basis-point cut in the key policy rate remains off the table, the Bangko Sentral ng Pilipinas (BSP) has signaled a total of 50 basis points (bps) over 2025, a move to cushion inflation risks.
BSP Governor Eli M. Remolona Jr. told reporters during a media information session that a 75 basis-point reduction “might be too much,” but argued that the Philippines also requires policy insurance against inflation.
That said, Remolona hinted at the likelihood of reducing the key borrowing costs by another 50 basis points, bringing it down to 5.25 percent this year.
As the Monetary Board (MB) is set to have its first meeting on Feb. 13, Remolona clarified that “not every meeting we’ll see a policy rate decline.”
He, however, affirmed a 25 basis-point reduction for each half of the year.
Remolona stood by his previous stance that a 100 basis-point cut is too much, now arguing that the BSP does not see the need for a “hard landing in the near future.” Hard landing translates to cutting more than 25 basis points.
Meanwhile, the central bank has set sights on reducing the reserve ratio requirements (RRR) by another 200 bps this year, declining from seven percent to five percent.
Among the major influences to this target is the sluggish economy, Remolona said, but he stressed that “it’s not just one GDP[gross domestic product] number. We’re looking at what happens to GDP over time.”
Full-year 2024 GDP averaged 5.6 percent as the economy only expanded by 5.2 percent in the fourth-quarter. This is the second consecutive year that the government missed its growth target.
According to Remolona, the MB has yet to decide when it will conduct its RRR cuts, but hinted that this could be carried out midyear, around June or July.
To recall, the BSP lowered the RRR in October 2024, injecting over P300 billion into the banking system to boost lending and reduce financial service costs.
“In a way, the policy rate cut is a substitute for cutting the reserve requirements. They have similar effects on the economy, although the reserve requirement doesn’t fluctuate up and down—it only decreases. Timing matters because we are also cutting the policy rate,” he explained.
Asked about the similarities between rate and RRR cuts, the governor stressed the ability of both to “stimulate the economy.”
“But the nice thing about the reserve requirement is that it affects both the deposit rate and the lending rate since it sits in the middle. So, it should raise the deposit rate a little bit if you cut the reserve requirement while lowering the loan rates,” he added.
Meanwhile, the governor expressed some concern over the possibility of Filipinos being deported from the US under the Trump 2.0 administration, as remittances from Overseas Filipino Workers (OFWs) contribute a significant share to the country’s GDP.
“We’re somewhat concerned, but we don’t know what’s going to happen. We’re trying to get a sense of what will happen. But that uncertainty won’t be cleared up for a while, I think. We're crossing our fingers,” Remolona said.
