BSP open to October cut if growth slows

The Bangko Sentral ng Pilipinas (BSP) could lower borrowing costs as early as October if the economy shows signs of losing momentum, BSP Governor Eli M. Remolona, Jr. said, suggesting that policymakers are not ruling out further easing even after cutting rates for three straight meetings.

“If we see [economic] output slowing down because of the lack of demand, then we would step in, easing policy rates [to] strengthen demand,” he said in an exclusive interview on Thought Leaders with Cathy Yang on One News on Thursday.

But the BSP chief said monetary policy would be ineffective in addressing supply-driven slowdowns. “If it’s a supply thing, there’s little we can do. So, it has to come from a demand side for us to act decisively,” he added.

Last month, the Philippine central bank lowered its benchmark interest rate by 25 basis points (bps) to 5%, marking its third consecutive cut. That brought total easing to 150 bps since August 2024.

Mr. Remolona has repeatedly described the policy setting as a “Goldilocks rate,” balancing inflation and growth.

“We’re in the Goldilocks zone, I would say,” he said. “So, if the forecast stays… we’re going to stay where we are in terms of the policy rate. There may be small adjustments — a pause or an ease — but more or less, we’re going to be at the same range.”

The governor said two quarter-point reductions in October and December are “possible but not likely.” While not ruling them out, he said the central bank is inclined to hold steady if forecasts for both inflation and growth remain intact.

Larger cuts are improbable. “A 50-bp cut is a big shot,” Mr. Remolona said, stressing that easing would likely continue in smaller, incremental steps. He added that only a sharper slowdown in economic activity and a rise in unemployment would prompt more aggressive action.

Philippine inflation averaged 1.7% in the first eight months, below the BSP’s 2-4% target, after quickening slightly to 1.5% in August.

This was the sixth straight month that consumer price growth undershot the target. The economy expanded by 5.5% in the second quarter from a year earlier, quicker than 5.4% in the previous quarter.

The BSP projects full-year growth to settle at the lower end of the government’s 5.5-6.5% goal, with inflation ending the year at 1.7%.

The Monetary Board has two remaining policy meetings this year, on Oct. 9 and Dec. 11. Mr. Remolona said the central bank typically makes decisions every two months as new data come in, but he did not rule out off-cycle action.

“Of course, if it’s really bad, we can move the policy rate even outside our usual schedule of policy meetings, but that’s highly unlikely,” he said.

Beyond the immediate growth-inflation trade-off, Mr. Remolona said policy adjustments also help banks operate more efficiently.

“For me, it’s no longer a monetary policy thing,” he said. “It’s more of a structural thing to help banks be more efficient in terms of lending, pricing their deposits.”

The central bank chief said inflation risks are generally low. The BSP expects price increases to average 3.3% next year and 3.4% in 2027, both within target.

“If it’s not so good data, then of course we’ll ease,” he said. “The risks of higher inflation which would make us tighten, the way we see it now, those risks are small. So, I think we’re comfortable for now.” — Katherine K. Chan