The Monetary Board (MB) has announced a second reduction in policy rates by 25 basis points for 2024 while noting that it will “maintain a measured approach in its easing cycle.”
In a statement, the Bangko Sentral ng Pilipinas said the MB decided to reduce the Target Reverse Repurchase (RRP) Rate of the Bangko Sentralng Pilipinas by 25 basis points to 6.0 percent at its monetary policy meeting on Oct. 16, 2024.
The interest rates on the overnight deposit and lending facilities were accordingly adjusted to 5.50 percent and 6.50 percent, respectively. These will take effect tomorrow, Oct. 17 2024.
“The Monetary Board’s decision is based on its assessment that price pressures remain manageable,” the BSP said.
The risk-adjusted inflation forecast for 2024 eased to 3.1 percent from 3.3 percent in the previous meeting. However, the risk-adjusted forecasts for 2025 and 2026 have increased slightly to 3.3 percent and 3.7 percent, respectively.
“Nevertheless, this outlook is safeguarded by well-anchored inflation expectations,” the BSP said adding that the outlook for 2025 and 2026 is slightly higher but still within target.
The balance of risks to the outlook for 2025 and 2026 has shifted toward the upside owing mainly to potential adjustments in electricity rates and higher minimum wages in areas outside Metro Manila.
Meanwhile, downside factors continue to be linked to the impact of lower import tariffs on rice.
During the press briefing, BSP Governor Eli M. Remolona Jr. said that, despite the expected uptick in inflation outlook for 2025 and 2026, a 25 basis point cut is still possible in December.
Asked it a a 50 basis point reduction in December is possible, he said “I think, unlikely. I think what would make 50 basis points possible would be a scenario in which we see a hard landing. But otherwise, I think that's too aggressive a path.”
Meanwhile, Remolona said additional cuts amounting to 100 basis points in 2025 “would be somewhat on the dovish side. It's possible that it will be somewhat dovish.”
He added that, “we prefer to take baby steps in terms of adjusting the policy rate, meaning 25 basis points at a time, but not necessarily every quarter and not necessarily every meeting.”
Remolona said the Monetary Board expects domestic economic growth to continue to be strong. This reflects improved prospects for household income and consumption, investments, and government spending, which are supported by the start of the monetary easing cycle in August and the announced reduction in reserve requirements in October.
On balance, the within-target inflation outlook and well-anchored inflation expectations continue to support the BSP’s shift toward less restrictive monetary policy.
“Nonetheless, the monetary authority will continue to closely monitor the emerging upside risks to inflation, including geopolitical factors,” the regulator said.
It noted that, “Looking ahead, the Monetary Board will maintain a measured approach in its easing cycle to ensure price stability conducive to sustainable economic growth and employment.”