towards Katherine K. Chan
The Bangko Sentral NG Pilipinas (BSP) on Thursday lowered its Benchmark AnEw policy rate by 25 basis points (BPs) to 4.5% and signed the current cycle of standing that is nearing its end.
The monetary board cut the rate of repurchases on target for the fifth meeting in a row, bringing the rate to the lowest in more than three years or September 2022.
Similarly, rates on overnight deposits and lending institutions have increased by 25 bps each to 4% and 5%, respectively.
This was in line with a business poll conducted last week where 17 out of 18 analysts expected a 25-BP cut at the last Board meeting of the year.
“According to the data, (the reduction cycle) may be over. This could be the last victim,” said the last governor Eli M. Remolona, Jr. he said during the media briefing. “But depending on what else we see, we can still fight each other.”
The Central Bank has significantly reduced key borrowing costs by 200 bps since it started easing the cycle in August last year. It has brought 25-BP cuts in each of its meetings in April, June, August and October this year.
“When the balance is left, the currency board sees the financial cycle as a destructive cycle that is nearing its end,” the statement said.
The Monetary Board’s decision to release a fifth straight cut came after expectations that the economy would continue to weaken due to low business sentiment amid anti-flood and flood control measures.
“The currency board has noted that the outlook for domestic economic growth has weakened significantly. The business outlook is fraught with ongoing concerns about governance issues and continued uncertainty over global trade policy,” it said.
“However, domestic demand is expected to recover slowly as the full impact of the changing monetary policy works its way through the economy and as the pace of spending and the quality of public spending improve.”
The Philippine economy saw its weakest growth in more than four years at 4%, a decrease from 5.5% seen in the second quarter and 5.2% last year. This brought the growth of Gross Domestic Product (GDP) to 5% from September, below the government’s target of 5.5-6.5%.
“The vision remains weak because of the issue of corruption as we cannot look at it from various indices of spirits,” said Mr Remolona.
The business and financial perspective has weakened us as ongoing investigations reveal that government officials, contractors and private contractors are receiving billions in kickbacks from foreign infrastructure projects.
“The rate (rate) will revive economic activity a little at a time when painful governance issues surrounding infrastructure spending have reduced government spending, business confidence,” Mr Remolona said.
BSP Vice Governor Zeno Ronald R. Abenoja said GDP growth may remain at around 5% in Ireland.
The head of the central bank said that the economy could only start to recover in the second half of 2026, noting that rate cuts usually take two years to two years to have a full effect.
“I was hoping we would recover in the first half,” said Mr Remolona. “With the new information we’re getting, it looks like there’s more (to) the second half than the first half.”
“And hopefully by 2027, we’ll be back at or below the target,” he added.
Even now the inflation rate is the same for the BSP to get the benchmark rates, after the consumer price index (CPI) was 1.5% in November in October and 2.5% last year.
November marked the ninth consecutive month that inflation settled below the 2% 2%-4% Target and brought the CPI for 11 months to 11 CPI.
“The outlook for inflation continues to be Belign, and inflation expectations remain anchored,” the BSP said.
The Central Bank now expects inflation to end at 1.6% this year, lower than its previous forecast of 1.7%. However, it led to its inflation forecast next year to 3.2% from 3.1% and 2027 to 3% from 2.8%.
Mr Remolona noted that supply shocks could push inflation down quickly, but negative investment sentiment could help slow it down.
“The high inflation situation will be caused by money supply shocks such as energy price adjustments and rice taxes.
The peso hit the P59-per-dollar level and did not affect inflation “for now,” he said.
The oil chief was boiling, “and oil prices were respectable,” said the BSP chief. “It’s when both of them go in a bad way together that we start to worry about it.”
On Tuesday, the peso sank to a low of P59.22 against the dollar after the greenback strengthened on expectations of a cut.
However, it recovered on Thursday after closing at P58.99 per dollar, up 22 centavos from P59.21 at the end of Wednesday, Bankers Association of the Philippines data showed.
It is also a limited reduction
While Thursday’s cuts could be the end of the central bank’s cycle, Mr Remolona still leaves the door open to further cuts if economic conditions turn “worse than they think.”
“Any further cuts are likely to be limited and will be guided by incoming data,” the BSP said in a statement.
“Looking forward, the BSP will ensure that the overall policy settings remain consistent with maintaining the appropriate price stability for stable economic growth.”
Oxford Economics lead Economist Sunny Liu also said that this could be the last casualty of the BSP’s conservative policy tradition, but the aggressive economic growth could still get more.
“We expect no further rate cuts in 2026. That said, a sharp downturn in the economy could prompt further cuts,” he said in a note.
However, Pantheon Macromonomics Chief aspiring Asia Economist Miguel Chanco, said the currency board could move another 25-BP cut at its first meeting next year.
“We continue to believe that the Board will not stop making cuts
“It is clear that the Board still sees space and reason for good and to be more liberal for the foreseeable future,” he added.
RIMAL Commerce Banking Corp. Economist Michael L. Ricafufort said that rising inflation and the need to boost economic growth give the BSP more room to get one more year.
He predicts inflation will remain below the target until March next year, before accelerating to between 2% and 3% in April until December.
