(Bloomberg) — Governor Eli Remolona of the Philippine central bank has indicated that the country’s benchmark interest rate may be reduced by half a percentage point in 2025. The move comes as the central bank opts for a slower pace in policy easing.
Rate Cuts Expected in Two Phases
Remolona shared with reporters in Baguio on Saturday that the first rate cut of 25 basis points could occur in the first half of the year, followed by another quarter-point reduction in the second half. This gradual approach to rate cuts aims to ensure that the economy is properly stimulated without abrupt changes to monetary policy.
Inflation Outlook and Economic Growth Projections
Last year, the Banko Sentral ng Pilipinas (BSP) reduced its key interest rate by 75 basis points, bringing it to 5.75%, a two-year low, as inflation pressures eased. The central bank expects inflation to remain under control and projects it will range from 2.5% to 3.3% in January 2025, compared to 2.9% in December. Remolona also noted that inflation is expected to stay within the BSP’s target range of 2% to 4% this year.
The Philippine central bank is set to meet on February 13 to determine the next policy rate decision.
Potential Reserve Requirement Ratio (RRR) Reduction
In addition to the interest rate cuts, Remolona highlighted discussions on reducing the banks’ reserve requirement ratio (RRR) by another 200 basis points, potentially in the middle of the year. Lowering the RRR would free up more funds in the financial system, boosting economic activity. The last RRR reduction in October, which lowered it to 7% for large banks, released approximately $7 billion to help stimulate growth in one of Asia’s fastest-growing economies.
Growth and Economic Outlook
While the Philippines’ GDP grew at a slower-than-expected pace of 5.6% last year due to weaker investment, consumption, and agricultural output, the government is optimistic that the economy will regain momentum this year. Remolona emphasized that there is no concern about a “hard landing” in the near future, and there is no immediate need for drastic rate cuts of up to 100 basis points.
The BSP’s policy adjustments, including interest rate cuts and changes to the RRR, are aimed at supporting economic recovery and ensuring a balanced, sustained growth trajectory for the country.
Penulis : Alif Nur Tauhidin