As expected, the Bangko Sentral ng Pilipinas’ (BSP) Monetary Board has decided to reduce its target reverse repurchase (RRP) or policy rate by 25 basis points (bps) to 6.25 percent.

The last time the BSP cut the benchmark rate was on Nov. 19, 2020, also by 25 bps from 2.25 percent to two percent. It stayed fixed at two percent until May 16, 2022 when the BSP raised it back to 2.25 percent and continued to do so until October 26 last year to its rate of 6.5 percent before the easing cycle started this week. 

BSP Governor Eli M. Remolona Jr. said Thursday, Aug. 15, during the rate policy press briefing that with inflation “on a target-consistent path, the current macroeconomic outlook supports a calibrated shift to a less restrictive monetary policy stance. Nonetheless, monetary authorities remain mindful of lingering upside risks to prices.”

He said the Monetary Board which he chairs, will “continue to take a measured approach in ensuring price stability conducive to balanced and sustainable growth of the economy and employment.”

With adjustments to the target RRP rate, the BSP also cut the rates on the overnight deposit and lending facilities to 5.75 percent and 6.75 percent, respectively.

Meanwhile, the BSP reiterated that inflation is projected to continue with its downward path and return to within the government’s two-four percent target range despite the uptick in July. 

The BSP also announced Thursday the revised risk-adjusted inflation forecasts for 2024 of 3.3 percent and 2.9 percent for 2025. 

The central bank likewise released the risk-adjusted forecast for 2026 which is 3.3 percent. “This outlook is supported by well-anchored inflation expectations over the policy horizon,” said Remolona.

He added that the “balance of risks to the inflation outlook continues to lean toward the downside for 2024 and 2025 with a modest tilt to the upside for 2026.”

Remolona also said that the downside risks are linked mainly to lower import tariffs on rice, while upside risks could come from higher electricity rates and external factors.

“The Monetary Board also expects domestic demand prospects to hold firm. Despite tight financial conditions, second-quarter GDP growth has been solid and the unemployment rate has declined. Public investment alongside easing price pressures and robust employment conditions are expected to support economic activity,” he said.