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MACTAN, Cebu—The Bangko Sentral ng Pilipinas (BSP) has no plans to break its easing cycle despite the country’s slower-than-expected growth in the third quarter and the uncertainties surrounding the Trump administration in the United States.
However, BSP Governor Eli M. Remolona Jr. told reporters here on Tuesday that the Monetary Board will still leave room to pause in December as they remain keen on a “gradual” easing of the country’s monetary policy.
Remolona also said the reduction in policy rates will still be done in increments of 25 basis points. For next year, the BSP expects a reduction of 100 bps or less, depending on prevailing economic conditions.
“We’re still in the easing cycle. Either we cut in December or we cut in the next meeting, pero dahan dahan lang [but this will be done gradually],” Remolona told reporters on the sidelines of the two-day 2024 BSP-International Monetary Fund Systemic Risk Dialogue.
Remolona said the slowdown in the country’s economic growth in the third quarter is “an aberration” and that the fourth quarter will likely see an improvement in the economy’s performance.
Apart from the election of Trump, Remolona said the next big news will be the latest inflation print. He said the BSP expects the November inflation rate to remain within the target band of 2 to 4 percent.
On the Philippine peso, Remolona confirmed that the BSP has been intervening in the foreign exchange market. But these interventions are limited to “small amounts,” just enough to prevent a sharp depreciation of the currency.
It may be noted that since the Philippines is a net food and oil importer, a sharp depreciation in the peso or high volatility in the exchange rate, could become inflationary for the country.
“It’s inflationary [if it’s rather] sharp [and sustained], hindi kami nakikialam sa [we don’t intefere in] day-to-day movements. We are tracking the swings that take place over a few months, hindi araw araw [not daily],” Remolona said.
“Usually expected naman eh, the night before, these kinds of news will put pressure on the peso, cause the peso to strengthen or weaken; hindi naman nagkakamali yung mga expectation, pero [pag malakas] ang ano [swing] [The expectations are often correct, but if the swing is rather strong], we try to come in,” he also said.
Last month, despite reducing key policy rates by another 25 basis points, the Monetary Board stressed that it intends to take “baby steps” when adjusting policy rates, especially next year.
The Monetary Board reduced its Target Reverse Repurchase (RRP) Rate to 6 percent while the overnight deposit and lending facilities were accordingly adjusted to 5.50 percent and 6.50 percent, respectively. These will take place on October 17, 2024.
In an earlier interview on Bloomberg, Remolona said the Monetary Board may reduce rates by 100 basis points next year. However, on Wednesday, he said this will be done in a measured manner.
Key policy rates were reduced on Wednesday on account of better inflation expectations. The risk-adjusted forecast of the BSP is now lower at 3.1 percent from 3.3 percent estimated in the previous meeting of the Monetary Board.
However, the BSP said, its risk-adjusted outlook for 2025 was increased to 3.3 percent from the 2.9 estimated in August. The 2026 risk-adjusted forecast is now pegged at 3.7 percent, also higher than the 3.3-percent forecast made in August.
The BSP’s baseline forecast for inflation was at 3.1 percent in 2024; 3.2 percent in 2025; and 3.4 percent in 2026. (See: https://businessmirror.com.ph/2024/10/17/monetary-board-eyeing-baby-steps-in-rate-tweaks-in-2025/)