By Katherine K. Chan, A reporter
BANGKO SENTRAL ng Pilipinas (BSP) cut its key policy rate by 25 basis points (bps) for the sixth consecutive meeting, a move that appeared to help the economy regain its momentum following last year’s recession.
On Thursday, the Monetary Board cut the target repurchase rate (RRP) by 25 bps to 4.25%, the lowest in three years or from 3.75% in August 2022. This is similar to the rate stand set in September 2022.
Rates on overnight deposits and borrowing facilities were also reduced by 25 bps each to 3.75% and 4.75%, respectively.
The Monetary Board’s latest move met market expectations, as all 16 analysts voted BusinessWorld expects a 25-bp cut.
This brought the BSP’s total rate down to 225 bps since it began its monetary policy easing series in August 2024.
The sixth consecutive downgrade comes after weaker-than-expected economic growth, fueled by corruption in flood management that erupted last year.
“Growth is softer than expected. Investments have slowed,” said BSP Governor Eli M. Remolona, Jr. during a briefing. “This is due to a lack of accuracy. But the soft data on sentiment showed signs of recovery.”
“Our decision today can help restore confidence, increase investment and spending. The pace of economic recovery will depend on how quickly confidence returns,” he added.
In the fourth quarter of 2025, the Philippine economy grew by 3%, its worst performance in 16 years (excluding the pandemic period). This brought the annual gross domestic product (GDP) growth down to 4.4%.
The BSP expected growth to reach 3.8% in the last quarter of last year so that the full-year print would be 4.6%.
In 2025, the BSP introduced a 25-bp cut in each of its meetings in April, June, August, October, and December, with the last two fueled by a bleak growth outlook as governance problems weakened consumer and business sentiment.
“Economic growth is lower than the BSP’s expectations due to weak domestic demand. The latest indicators point to a recovery in the second half of the year, but growth will depend heavily on a quick recovery in confidence,” said Mr. Remolona.
However, the central bank lowered its GDP growth forecast for this year to 4.6% from 5.4% previously. If noticed, this can reduce government target of 5%-6%.
Accordingly, it sees the economy growing by 5.9% in 2027, lower than its previous estimate of 6.3%.
‘CONTROL POWER’
The favorable inflation situation also gave the central bank more room for easing, as it raised its rates amid emerging supply-side pressures.
“The perception of inflation is still manageable,” said Mr. Remolona. “Our forecasts point to a slight increase in inflation this year, but this is mainly due to factors affecting the supply of goods. Although these factors are short-term, they will require continued monitoring of potential effects.”
Headline inflation has returned to the BSP’s 2%-4% target almost a year after it rose to 2% in January.
The latest consumer price index was faster than the 1.8% recorded in December but softer than the 2.9% clip last year.
BSP Vice Governor Zeno Ronald R. Abenoja said they now expect inflation to drop to 3.6% this year, higher than their estimate of 3.2% in December.
In 2027, the central bank projects inflation to slow slightly to 3.2%, still above its previous forecast of 3%.
Electricity price adjustments, high oil prices and the impact of the government’s variable rice tax plan on local rice prices are likely to add strength.The pressures that exist this year, said Mr. They had a dog.
However, he noted that price pressures from such supply-side factors “may not persist and may dissipate over time.”
UNCERTAIN WAY OF POLICY
Asked how the future policy path looks now, Mr. Remolona said: “It is not so certain.”
He noted that consumer and business confidence is now a major problem, adding that the idea of easing monetary policy will depend on how quickly sentiment recovers.
“We see confidence coming back soon, in a few months. If we’re right, we won’t need more cuts,” said Mr. Remolona.
Earlier this month, the BSP official said they were seeing signs of a return to confidence, citing improvements in manufacturing and the stock market, as well as easing yields on government securities.
Mr. Remolona said the impact of weak confidence on the country’s growth has made the central bank “give more weight” to confidence.
“Now we are in a situation where it depends a lot on what happens to confidence in growth,” said Mr. Remolona. “Because in In December, we were more confident that confidence will be back soon. The lack of self-confidence turned out to be bigger than we thought,” he added.
However, the BSP governor also said they will stick to their price stability mandate, meaning keeping inflation low will remain a priority in monetary policy decisions.
“We support growth, and we want to grow. But at the same time, our main task is still inflation,” said Mr Remolona. “So, to the extent that we can support growth outside which causes inflation, we will support growth.”
Meanwhile, the CEO of Metropolitan Bank & Trust Co. it is likely to further its own policy approach.
“The market was divided by the decision, but the BSP chose to bring support sooner rather than later. the idea of inflation,” he said in a Viber message.
“Financial authorities also appeared to be more focused on confidence building, suggesting that the easing cycle could be extended for a while,” he added.
Senior Vice President of Emerging Markets Jason Tuvey sees scope for “at least” one more 25-bp rate cut in the coming months if the economy remains weak and inflation remains under control.
“It is also noteworthy that the BSP has removed the line from its previous statement that ‘the cycle of easing monetary policy (is about to end),’ suggesting that it is still open to the idea of further easing,” he said in an analysis on Thursday.
“All told, if the economy remains sluggish and inflation is contained, as we expect, there may be room for at least one 25-bp cut in interest rates, to 4%, in the coming months,” he added.
In a separate comment, ANZ Research said restoring lost confidence may take time, but improved government spending could speed up the process.
“Our assessment is that confidence will take time to recover and will need to be supported by a revival in government spending,” said ANZ Research exchange Foreign Exchange analyst Kausani Basak and Chief Economist for Southeast Asia and India Sanjay Mathur. “However, we will monitor developments in consumer and corporate confidence before revising our current view that the BSP has completed its rate-cutting cycle.”
The Monetary Board is scheduled to have it its second policy review this year on 23 April.
