Possible fallout from Israel-Iran hostilities considered
The Bangko Sentral ng Pilipinas (BSP) reduced its benchmark interest rate by another 25 basis points on Thursday, bringing the Target Reverse Repurchase (RRP) Rate down to 5.25 percent as inflation forecasts continued to soften.
Corresponding rates for the overnight deposit and lending facilities were reduced to 4.75 percent and 5.75 percent, respectively.
BSP Governor and Monetary Board Chairman Eli Remolona Jr. said the decision reflects the Monetary Board’s assessment that inflationary pressures have eased further, with the forecast for 2025 dropping to 1.6 percent from 2.4 percent at the previous policy meeting.
Headline inflation slowed to a fresh six-year low of 1.3 percent in May, down from 1.4 percent in April, bringing the year-to-date average to just 1.9 percent.
Drivers of disinflation
Deputy Governor Zeno Ronald Abenoja cited three key factors behind the BSP’s increasingly dovish outlook: easing food prices, softer global oil costs and a potential moderation in domestic economic activity.
“We now recognize the slowdown in food inflation, something that we’ve been observing for the past five months. We believe it will continue to shape inflation dynamics moving forward,” Abenoja said.
He also noted that while oil prices have seen some recent volatility, they remain significantly lower than last year’s levels. Meanwhile, the domestic economy, while still resilient, is seen showing signs of slowing momentum.
External headwinds
Remolona flagged rising global uncertainties — including Middle East tensions and shifting US trade policies — as factors that could weigh on Philippine growth and add to inflation volatility via oil and power costs.
“While growth risks are rising, inflation pressures have declined enough for us to adopt a more accommodative monetary stance,” Remolona said. He added that the Board remains vigilant, citing geopolitical tensions and external policy shifts as emerging risks.
“We have three more policy meetings this year — in August, October and December. If things stay on track, we’re likely to
cut one more time. But depending on the data, we may cut twice more — or not at all,” he said.
The BSP’s overarching aim, Remolona reiterated, remains to maintain price stability while supporting sustainable growth and employment.
Further easing ahead
Economists said the latest rate cut was widely expected and could pave the way for additional easing.
“This brings the key rate to its lowest in more than 2.5 years,” Michael Ricafort of RCBC said, adding that lower borrowing costs could stimulate economic activity.
Metrobank’s Nicholas Mapa said the BSP is positioning itself to support the economy amid external headwinds. “Governor Remolona signaled the need for more accommodative policy. Further cuts remain on the table, but will depend on economic data,” he said.
UnionBank chief economist Ruben Carlo Asuncion echoed the sentiment: “Inflation continues to ease, and we expect it to average at 2 percent for 2025, within the
government’s 2–4 percent target range.”
Miguel Chanco of Pantheon Macroeconomics projected two more rate cuts before the year ends.
“With inflation well below target, continued easing is a no-brainer,” Chanco said. While he expects inflation to gradually rise again, it will likely stay below the BSP’s lower bound for the rest of the year. “Oil prices remain a risk but, so far, the broader disinflationary trend holds.”
Chanco also flagged subdued economic growth, projecting full-year GDP to slow to 5.3 percent in 2025 from 5.7 percent in 2024. “The first quarter’s 5.4 percent may be as good as it gets.”
