BSP sees room for two more rate cuts

The Bangko Sentral ng Pilipinas (BSP) on Thursday said there is room for two more rate cuts this year as inflation remains benign.

“There’s room [to cut] because inflation is low, and growth is a bit lower also. Except that the cuts cannot really compensate entirely for the slowdown in growth,” BSP Governor Eli M. Remolona, Jr. told reporters.

The BSP last month cut the target reverse repurchase rate by 25 basis points (bps) to 5.25% from 5.5% amid a moderating inflation outlook and weaker-than-expected first-quarter economic growth.

Inflation cooled to an over five-year low of 1.3% in May. This brought the five-month average to 1.9%, slightly below the BSP’s 2-4% target band.

A BusinessWorld poll of 17 analysts yielded a median estimate of 1.5% for June inflation, which is scheduled to be released on Friday (July 4).

Asked if slowing inflation gives the BSP room to cut, Mr. Remolona replied: “Absolutely.”

When asked if this would mean two rate cuts this year, he replied: “It’s possible. We still have meetings in August, October, and December.”

“The slowdown in (first-quarter) growth was due to uncertainty. Big-ticket consumption items and investments were postponed, and exports slowed down,” Mr. Remolona said in mixed English and Filipino.

The Monetary Board’s remaining policy meetings this year are scheduled for Aug. 28, Oct. 9, and Dec. 11.   

Mr. Remolona said the central bank will remain data dependent before deciding if more rate cuts are needed to support economic growth.

The Development Budget Coordination Committee (DBCC) cut the gross domestic product (GDP) growth target to 5.5-6.5% for this year from 6-8% previously, due to heightened global uncertainties stemming from the US trade policy shifts and the conflict in the Middle East.

The DBCC also narrowed the GDP growth target range to 6-7% for 2026 to 2028 from 6-8% previously.

Mr. Remolona said the revised DBCC growth targets were more “realistic.”

However, he said the BSP will keep its 2-4% inflation target for now.

The DBCC narrowed its inflation assumption for 2025 to 2-3% from 2-4% previously but retained the 2-4% outlook for 2026 to 2028.

Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a Viber message that he still expects just one more rate cut this year.

“Nevertheless, the door is now open for a second if conditions warrant it. The revised DBCC targets, the improved inflation outlook, and the global and domestic headwinds (slower global growth, geopolitical tensions, and domestic risks like oil prices and rice tariffs are being closely monitored by the BSP) are some of the factors that may justify a more accommodative stance to support growth,” Mr. Asuncion said.

Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas said in a Viber message the BSP could implement two more rate cuts this year as long as inflation remains in the low 2% range.

Wage hike

Meanwhile, Mr. Remolona said the PHP 50 daily wage increase for minimum wage earners in Metro Manila could have an impact on inflation.

“There could maybe be a little, but we will still analyze it,” he said.

Starting July 18, about 1.2 million workers in the National Capital Region and nearby cities and provinces will get a P50 daily wage increase — the highest pay hike ever granted by the National Wages and Productivity Commission.

The daily pay hike is equivalent to a P1,100 per month increase for a five-day work week or a P1,300 increase for those working six days a week, the Department of Labor and Employment said. — Aaron Michael C. Sy