Monetary Board (MB) member and Department of Finance (DOF) Secretary Ralph G. Recto aligned with market consensus, expecting that the central bank will likely reduce its key borrowing cost by 25 basis points during its final policy meeting on Thursday, Dec. 19.
"I agree with the market consensus of a 25 basis point decrease," Recto told reporters in an informal press chat, affirming the high chances that the central bank will proceed with this decision.
"All I can say is I agree with what you reported in the papers that there is a great possibility—a probability," he said.
Private sector economists likewise forecasted a 25 basis-point cut, citing the country's growth slowdown in the third quarter to 5.2 percent, the lowest since the second quarter of 2023.
Earlier this month, the Development Budget Coordination Committee (DBCC) trimmed its full-year growth target to 6.0 to 6.5 percent in 2024. It also widened its macroeconomic target range to between six percent and eight percent, given the domestic and global uncertainties.
To reach the eight percent growth target, Recto leaned towards "more investments under the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act"—a new economic reform which, according to Recto, would boost investments, create jobs, and reduce poverty.
Recto said achieving the higher target will require increased investments, noting that usual government spending could sustain six percent growth, while additional investments could push it to six to seven percent. He emphasized that lower interest rates would encourage more investments and consumption, drawing a parallel to how lower credit card rates can boost spending.
The Bangko Sentral ng Pilipinas (BSP) initiated its policy easing cycle in August, cutting rates to 6.25 percent, followed by another 25 bps cut in October after holding them at 6.5 percent since October 2023. If the BSP moves to reduce the key policy rate by 25 basis points, this would mark the third reduction this year, bringing the key interest rate to 5.75 percent.
For 2025, Recto said his expectation was a 100 bps full-year reduction, but now estimates around 75 basis points.
"You know, my position was 100 [basis points]. But it also depends on what happens, what the Fed [U.S. Federal Reserve] does. So we have to wait for the inflation numbers. Wait for what the Fed does, I suppose,” he said.
November inflation registered at a 2.5 percent rate, still comfortably within the government's two to four percent target band despite its continued acceleration.
When asked whether rate cuts in 2025 would be successive or one drop, Recto said that would depend on the central bank, as the MB will review all relevant data.