Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. has confirmed that another cut in borrowing costs is possible at the upcoming April 10 monetary policy meeting, potentially bringing the key policy rate down to 5.5 percent.
“When we think we’re on track, more or less on track, we stay with baby steps, which means 25 basis points [bps] at a time,” Remolona told reporters during a Tuesday Club event on Tuesday, March 11.
Remolona said the BSP remains on an easing cycle but has yet to determine the magnitude of interest rate cuts for 2025.
The reason, he said, is that the Monetary Board (MB) is taking into account multiple scenarios, including a baseline projection for rate cuts, a hawkish approach with fewer reductions, and a dovish stance with more cuts than the baseline.
“We are expecting to cut a few more times this year. But how much, we haven't determined,” Remolona said.
“So we compare those three scenarios and how we see inflation evolving, how we see growth evolving. So it’s a balancing act between inflation and growth,” the central bank governor explained.
He reiterated that a quarter-point cut is “on the table” next month, citing the country’s balanced or “Goldilocks rate, which is just right—not too hot, not too cold.”
According to Remolona, the BSP is still working to factor global trade uncertainties into its policy models.
While policy uncertainty indicators have spiked, the Governor said market measures such as the volatility index (VIX) and credit default swap (CDS) spreads remain stable. This could mean both central banks and markets are still evaluating the impact of these uncertainties.
Remolona acknowledged that February inflation at 2.1 percent fell below the BSP’s forecast range of 2.2 percent to three percent, but added that more data, including March inflation due on April 5, must be assessed before deciding to further slash interest rates.
“We did miss the inflation number on the low side, lower than the bottom of our range. If we're going to miss it, that’s the way to miss it, right? So we’re happy about that miss,” he said.
“We’ll look at all the other numbers, and then we’ll decide April 10 on whether to ease further or not to ease,” he added.
Meanwhile, he downplayed concerns of a hard landing, stating that a recession remains “highly unlikely.”
“If things turn out much worse than expected, what we call a hard landing, the rate cut could be 50 bps or even more. But as long as we remain more or less on track, it will be 25 bps at a time,” he said.
Gradual RRR cuts
Remolona also sees room for further reductions in big banks’ reserve requirement ratio (RRR), but emphasized a cautious approach.
“For me, five percent is still high,” he said, but noted that the decision lies with the seven members of the MB.
He added that the reduction “can’t be sudden because we need to control the liquidity that’s coming out.”
The central bank slashed ratios across the board in February. Effective on March 28, the ratio for big banks will be lowered by 200 bps from the current seven percent; for digital banks, it will be reduced by 150 bps to 2.5 percent from four percent; and for thrift banks, it will decrease by 100 bps, bringing it down to zero.
Remolona said the BSP is open to further reducing the RRR, with a zero level as a possibility. “It can be zero. In the US, the RRR is zero.”
He also noted that another RRR cut by year-end remains an option.