BSP cuts interest rate to 6% over easing prices

Metro Manila, Philippines — The Bangko Sentral ng Pilipinas (BSP) reduced the cost of money for the second time in the year tracking easing prices of goods and services.

The central bank’s policy-making Monetary Board on Tuesday, Oct. 16, announced the decision to reduce the interest rate by 25 basis points to 6% from 6.25%. This took effect on Wednesday, Oct. 17.

This was the lowest interest rate since February 2023.

Interest is charged on borrowings such as housing and auto loans, or credit card purchases.

A low interest rate could stimulate the economy since it encourages consumption and investment.

The BSP hinted at another possible 25-basis-point rate cut by December.

“I would say 100 basis points in 2025, after the cuts we've made in 2024, an additional [cut of] 100 basis points would be somewhat on the dovish side,” BSP Gov. Eli Remolona Jr. said in a news briefing. “It's possible but it would be somewhat dovish.”

“We prefer to take baby steps in terms of adjusting the policy rate, meaning 25 basis points at a time, but not necessarily every quarter or not necessarily every meeting,” he said.

The October rate cut came as BSP's risk-adjusted 2024 inflation forecast went down to 3.1% from 3.3% registered in the board's August meeting.

The government has an inflation target of 2-4.

The Philippine Statistics Authority said September inflation eased to 1.9% from 3.3% in August, along with rice inflation dropping to a single-digit at 5.7%.

Higher electricity rates and minimum wage outside Metro Manila, however, are seen to impact inflation forecast to the upside in the next two years.

Coming out from the October meeting, BSP Assistant Gov. Zeno Ronald Abenoja said the central bank lowered its baseline inflation forecast for 2024 to 3.1% from August’s 3.4%. However, the BSP raised baseline inflation forecasts to 3.2% from 3.1% for 2025, and to 3.4% from 3.2% for 2026.

“The relevant horizon that we consider right now is the 2025 to 2026 inflation outlook,” Abenoja said.

“For 2025 and 2026, we are seeing a higher, slightly higher, but still within target inflation averages,” Abenoja said. “And the slight uptick is due to higher global oil prices, which we have also observed the past few weeks, as well as some positive base effects in the next 12 months.”