President Marcos’ chief economic manager and representative in the Monetary Board (MB) has projected a 75-basis point (bp) reduction in the central bank’s interest rates this year, anticipating this would catalyze economic growth to seven percent or higher.
“There is room for a rate cut in our next [meeting on April 10]. So we’re in an easing cycle. It’s a high probability that we could do a rate cut also in our next meeting,” Finance Secretary Ralph G. Recto said in a Bloomberg TV interview on Wednesday, March 19.
This comes after Recto expressed hope in achieving the higher end of the government’s 2025 growth target of six percent to eight percent, citing the recent passage of the amended corporate tax reform law as a major driver, in addition to the reduction of borrowing rates.
Bringing interest rates further down is likely at the next MB policy meeting “because inflation has been controlled in the Philippines,” he claimed. Increases in consumer prices dropped further to a six-month low in February at 2.1 percent.
Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolina Jr. earlier said that a 25-bp cut is “on the table.”
Recto said he expects the central bank to slash rates by at least 50 bps this year, even looking at an even larger cut of 75 bps in total. He said that this will “help propel growth, consumption and investments moving forward.”
With the growth rate of the local economy falling largely short of last year’s target, Recto said the looming rate cuts could boost growth “by at least half a percent.” Gross domestic product (GDP) growth clocked in at 5.6 percent, way below the lowered target of six to 6.5 percent.
He noted that if the MB could reduce interest rates by 150 bps within the next two years, or by 2027, growth would “probably” be “even higher.”
Recto noted that in the past decade, the country grew at an average of 6.4 percent when interest rates were around 3.9 percent at most.
With the current policy rate at 5.75 percent, he said lowering rates and boosting investments could help push growth to seven percent or higher despite the challenging global environment.
“We’re pretty confident that we would hit at least a six percent growth,” Recto said, citing affirmations from the World Bank, the International Monetary Fund (IMF), and institutions that the Philippines is “on track to six percent.”
His confidence comes from the country’s “very good” macroeconomic fundamentals, a declining jobless rate year-on-year, a growing middle class, and increased infrastructure investments exceeding five percent of GDP.
“We have elections also right now, and during elections, there’s more spending, so we’re pretty confident we hit at the very least six percent this year,” he added.
Recto downplayed the risk of weakening the peso due to lowered rates.
He said the peso has had a relatively stable performance, adding that the Philippines has been in “the middle of the pack” in the ASEAN region.
But he added that the government is closely monitoring the situation amid global currency volatility.