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Filipinos’ Personal Equity and Retirement Account (PERA) contributions jumped by 24% year on year at end-2024, data from the Bangko Sentral ng Pilipinas showed.

Accumulated contributions to PERA climbed to PHP 491.4 million at end-2024 from PHP 396.3 million as of 2023, the central bank said.

The total number of PERA contributors likewise rose by 6.4% to 5,912 at 2024’s close from 5,555 a year prior.

The bulk (69.5%) of the accumulated PERA contributions came from employee contributions, equivalent to PHP 341.7 million at end-2024 across 4,211 contributors.

This was followed by overseas Filipino workers’ (OFW) contributions at PHP 82.2 million with 789 contributors.

Lastly, there were 912 self-employed contributors for a total of PHP 67.4 million in contributions.

Launched in 2016, PERA is a voluntary fund scheme meant to supplement retirement benefits from the Government Service Insurance System (GSIS) or the Social Security System (SSS), as well as private employers.

Contributors aged 18 and above and have a tax identification number are allowed to open a PERA account. Self-employed and locally employed contributors can make an annual contribution of PHP 200,000 while OFWs can invest up to PHP 400,000.

The PERA Law also offers various incentives to contributors, such as tax exemptions on earnings from PERA investments, a 5% income tax credit on contributions that can be used for paying income tax liabilities, and a tax-free distribution on qualified withdrawal of PERA investments.

“The increase in PERA contributions in 2024 suggests a growing awareness among Filipinos about the value of retirement planning, despite the relatively low number of participants,” John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said.

“More Filipinos, especially the employed sector, are recognizing the need to secure their retirement, given economic uncertainties and the rising cost of living.”

Mr. Rivera said the rise in contributions could also be attributed to the effort of the central bank, financial institutions and employers to promote PERA.

“While many Filipinos still struggle with daily expenses, certain groups like OFWs and professionals, may have had more financial flexibility to set aside funds for retirement,” he said.

“With concerns over the long-term sustainability of the SSS and GSIS pension funds, some workers may be looking for alternative or supplemental retirement income sources.”

In 2020, the BSP launched the digital platform for PERA to make it more accessible, allowing Filipinos to open accounts, choose different accredited products, and settle transactions online.

The central bank earlier said the wider use of PERA can help increase government savings, foster investment and capital market development, which would support economic growth. — Luisa Maria Jacinta C. Jocson

Philippine manufacturing activity in February expanded at its slowest pace in 11 months amid softer growth in orders and output, data from S&P Global showed.   

The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) stood at 51 in February, easing from the 52.3 in January.

This was the lowest PMI reading in 11 months or since the 50.9 reading in March 2024. February also marked the second straight month of slowing growth.

A PMI reading above 50 denotes better operating conditions than in the preceding month, while a reading below 50 shows a deterioration.

“Robust growth observed from the end of the previous year into the beginning of this year waned in February, as the latest survey data indicated slower expansions in output and new orders,” Maryam Baluch, economist at S&P Global Market Intelligence, said in a statement on Monday.

The Philippines posted the second-fastest PMI reading among six Association of Southeast Asian Nations (ASEAN) member countries, after Indonesia (53.6) and ahead of Thailand (50.6).

Malaysia (49.7), Vietnam (49.2), and Myanmar (48.5) all posted a contraction in factory activity in February.

In its report, S&P Global said the manufacturing conditions in the Philippines continued to improve in February, although this was the “least marked in nearly a year.”

“However, underlying data showed a mixed picture, with the sector showing a slight cooldown as growth in new orders and output moderated on the month, leading to a softer increase in purchasing activity,” it said.

S&P Global said growth in new orders moderated in February after the robust increase seen in the fourth quarter of 2024. New factory orders rose at the slowest pace in seven months, while growth in new export orders was subdued.

Production growth also moderated in February, with output growth at the weakest since July 2024.

As demand cooled, manufacturers tempered their purchasing activity. February saw the slowest expansion in the last 15 months.

S&P Global noted manufacturing firms reported a fresh rise in backlog of work for the first time in five months.

“Although the rate of accumulation in work-in-hand was modest, it was the most pronounced seen in nearly two years. Consequently, companies utilized their inventories to meet order requirements and thereby reduced their input stock holdings, signifying the first decrease in three months,” it said.

Ms. Baluch noted that employment levels went up for the first time in three months, “with companies challenged to meet sustained demand improvements.”

S&P Global said price pressures further eased in February.

“Although material shortages and transportation costs continued to drive up input prices, the rate of increase was the slowest in the current nine-month sequence of inflation,” it said.

Output prices for Philippine-made goods inched up at the softest pace in 10 months, it added.

“Inflationary pressures eased, thus suggesting that the central bank will continue to proceed with a loosening of its monetary policy. This could in turn boost somewhat weakened business confidence and support further new order growth,” Ms. Baluch said.

The Bangko Sentral ng Pilipinas (BSP) left the benchmark rate unchanged at 5.75% at its Feb. 13 meeting. BSP Governor Eli M. Remolona, Jr. has said the central bank is still in its easing cycle and signaled the possibility of up to 50 basis points worth of reductions this year.

The Monetary Board’s next rate-setting meeting is on April 3.

S&P said manufacturers maintained a positive outlook for production in the coming year, but the degree of confidence fell to a 10-month low.

In an e-mail, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the Philippines was the only country in ASEAN that “suffered a loss in momentum” in February.

“[The Philippines] PMI softened for a second straight month to an 11-month low of 51.0, now a far cry from its recent high of 54.3 in December,” he said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the PMI reading reflects the slowdown in demand after the holiday season.

“Furthermore, uncertainties on Trump’s higher US import tariffs and other protectionist policies since his inauguration also a drag on global investments and international trade, including those in the Philippines,” he said.

“However, offsetting positive factor would be election-related spending, the May 12, 2025 midterm elections that could lead to increased spending by the government for various projects, especially infrastructure and other programs before the election ban,” Mr. Ricafort added. – Aubrey Rose A. Inosante, Reporter

Headline inflation likely slowed in February amid the decline in prices of rice and other key commodities, analysts said.

A BusinessWorld poll of 18 analysts conducted last week yielded a median estimate of 2.6% for the February consumer price index (CPI). This was within the Bangko Sentral ng Pilipinas’ (BSP) 2.2%-3% forecast for the month.

If realized, February inflation would be slower than the 2.9% in January and the 3.4% clip in the same month in 2023.

This would also be the lowest monthly print in four months or since the 2.3% recorded in October.

The Philippine Statistics Authority is scheduled to release February inflation data on Wednesday (March 5).

“Upward price pressures for the month include higher electricity rates and oil prices, and an increase in the prices of key agricultural commodities such as fish and meat,” the BSP said in a statement.

However, these were likely offset by lower prices of rice, fruits, and vegetables as well as negative base effects, it added.

“Softer gasoline and diesel prices, weaker US dollar, easing electricity and rice prices will act as an offset to broad food prices from a year ago,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines (UnionBank), said.

Easing rice prices likely caused the CPI to go down this month, analysts said.

“(Our) February inflation forecast is at 2.6% due to falling rice prices as a result of additional supply in the market due to the declaration of the food security emergency,” Reinielle Matt M. Erece, economist at Oikonomia Advisory and Research, Inc., said.

The Department of Agriculture (DA) last month declared a food security emergency on rice, which allowed the National Food Authority (NFA) to release buffer stocks at subsidized prices. Local government units can buy NFA rice at P33 per kilo and sell it to the public at P35 per kilo.

On Feb. 15, the DA also lowered the maximum suggested retail price (MSRP) of 5% broken imported rice to P52 per kilo from P55 previously. This was further slashed to P49 per kilo, starting March 1.

“The biggest driver of the deceleration was likely rice. Not only were there favorable base effects on rice, but rice prices fell on a month-on-month basis,” Aris D. Dacanay, economist for ASEAN at HSBC Global Research, said.

Chinabank Research said the slowdown in inflation in February was mainly driven by lower prices of rice as well as vegetables.

Meanwhile, Mr. Dacanay said retail fuel prices began easing in February amid falling global prices.

In February, pump price adjustments stood at a net decrease of P0.05 a liter for diesel and P0.90 a liter for kerosene. However, gasoline had a net increase of P2.1 a liter.

“Further, world oil prices are on a downtrend, and while a slight increase in domestic energy prices is observed, we expect that prices overall will stabilize,” Mr. Erece said.

Meanwhile, ANZ Research said utilities and transport inflation likely eased year on year in February due to favorable base effects.

Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco also noted a “softening in inflation in housing and utilities, transport and restaurant and accommodation services.”

The stronger peso during the month could also tame inflation, analysts said.

“The peso exchange rate appreciated against the US dollar so far in February versus in recent months, the strongest for the peso in nearly two months,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

“This could help ease importation costs and overall inflation,” he added.

The peso closed at PHP 57.995 against the greenback at end-February, appreciating by 37 centavos from its PHP 58.365 per dollar finish at end-January.

“Owing to the relative stable prices of consumer products added to strong showing of the peso against the dollar, the inflation for the month of February is expected to go down,” Emmanuel J. Lopez, professorial lecturer at the University of Santo Tomas Graduate School, said.

Inflationary pressure

On the other hand, analysts noted factors such as high electricity rates could have driven up February inflation.

“Slightly higher electricity prices also offset the decline in crude oil prices,” Citi Economist for the Philippines Nalin Chutchotitham said.

Manila Electric Co. (Meralco) raised the overall rate by P0.2834 per kilowatt-hour (kWh) to P12.0262 per kWh in February from P11.7428 per kWh in January.

“Inflation drivers in February include price hikes in electricity and local petroleum products as well as higher prices of select food items such as meat, fish, fruits, and vegetables,” Security Bank Corp. Vice-President and Research Division Head Angelo B. Taningco said.

Save for rice, other key food items could potentially stoke inflation during the month.

“Price pressures will show up in the food and utilities baskets,” Moody’s Analytics economist Sarah Tan said.

“Notably, onion prices soared in February — as much as 70% higher than the prior month. Surging prices have prompted officials to inspect onion warehouses to ensure that supply is not being withheld from the market amid the ongoing harvest season,” she added.

Data from the Agriculture department showed that the retail price of local red onion averaged P174.01 per kilogram as of end-February.

“However, substantial price pressures were seen in food items other than rice. Prices of cabbages, bitter melons, onions, and eggplants rose within the range of 30-50% year on year as supply conditions remain tight from past typhoons,” Mr. Dacanay said.

In the coming months, headline inflation is expected to remain within the 2-4% target band.

“On balance, the inflation outlook remains benign with food inflation expected to ease in the near to medium term,” ANZ Research said.

The BSP expects inflation to average 3.5% this year, accounting for risks.

The favorable inflation outlook should prompt the central bank to continue on its easing cycle, analysts said.

“We think that overall inflation staying below the midpoint of the official 2-4% target will allow the BSP to cut rates by 25 basis points (bps) at its next policy meeting in April,” ANZ said.

Ms. Tan said the next rate cut could come as early as April “should inflation sustainably remain close to the midpoint of the target range and the peso stabilize.”

The Monetary Board’s next rate-setting meeting is scheduled for April 3.

“From what I see, BSP will resume rate cutting in April as we now know BSP was planning to cut this month, but a last-minute policy uncertainty increase caused the delay,” Sun Life Investment Management and Trust Corp. economist Patrick M. Ella said.

Weak economic output will also make space for the central bank to continue easing.

“If inflation expectations continue to be subdued and anchored, we think that the MB (Monetary Board) has room to trim the policy rate to support GDP (gross domestic product) growth and as follow up to the recent RRR (reserve requirement ratio) cut,” Mr. Asuncion said.

The BSP last month announced it will cut the RRR of universal and commercial banks and nonbank financial institutions with quasi-banking functions by 200 bps to 5% from 7%, effective March 28.

“A stable inflation print but a faltering GDP growth is a signal for the central bank to do a rate cut at their next meeting,” Mr. Erece said.

“Although they have cut reserve requirements for banks, a policy rate cut can boost investments and spending which are the country’s primary drivers of growth.”

UnionBank expects a total of 50 bps worth of cuts this year.

On the other hand, analysts said that the BSP may continue to remain cautious.

“Looking ahead, even with inflation remaining within the BSP’s 2-4% target range, we think the BSP will likely maintain its cautious stance while awaiting clarity on global trade policies and their impact on inflation and growth,” Chinabank said.

The BSP unexpectedly kept interest rates steady at 5.75% in February, its first policy meeting for the year.

This put a pause to its easing cycle, as it slashed borrowing costs by a total of 75 bps last year through 25-bp cuts in three straight meetings.

BSP Governor Eli M. Remolona, Jr. said “global trade uncertainties” prompted the policy hold.

However, he said the central bank is still in easing mode and signaled the possibility of up to 50 bps worth of reductions this year. – Luisa Maria Jacinta C. Jocson, Reporter

The Philippines’ trade-in-goods deficit widened to a three-month high in January as both exports and imports picked up, the Philippine Statistics Authority (PSA) reported on Friday.

The trade deficit could further worsen this year as the US trade war escalates, analysts said.

Preliminary data from the PSA showed the country’s trade balance — the difference between the values of exports and imports — ballooned to a USD 5.09-billion deficit from USD 4.14-billion deficit in December and the USD 4.36 billion gap a year earlier.

The latest figures showed the widest trade deficit in three months since the USD 5.81-billion deficit in October 2024.

PSA data showed that year on year, merchandise exports in January grew by 6.3% to USD 6.36 billion, surpassing the 6% growth projection set by the Development Budget and Coordination Committee (DBCC) this year.

Month on month, exports grew by 12.2%. This ended four straight months of export decline.

By value, it was the highest since the USD 6.75 billion in August 2024.

Imports went up by 10.8% year on year to USD 11.45 billion in January. Month on month, it grew 16.7%, ending two months of decline.

Imports growth also exceeded the 5% projection set by the DBCC. The value of imports was the highest in three months or since the USD 12 billion in October last year.

“The fact that it [electronics and semiconductors] has been negative for a number of months implies that the demand for our semiconductor, is not as hot as the newer, more powerful semiconductors in the world which is really used for AI industry,” George N. Manzano, economist from the University of Asia and the Pacific, said in a phone interview.

Electronic products, the country’s main export commodity as these account for more than half of exports in January, saw a 2.6% decline to USD 3.37 billion in January from the USD 3.46 billion in the same month in 2024.

Semiconductors, which accounts for almost 40% of total exports and three-fourths of electronic products that month, also contracted by 6.8% year on year to USD 2.52 billion.

These declines were offset by the double-digit increases seen in other manufactured goods (up by 66.6% to USD 471.07 million), coconut oil (up 80.3% to USD 249.05 million), and other mineral products (up by 33.1% to USD 247.09 million).

“The fact that our exports are also increasing, that’s also a good indicator,” Mr. Manzano said.

The United States remains the top destination of locally made goods in January, with exports valued at USD 1.13 billion, accounting for 17.7% of total export sales.

This was followed by Japan with USD 945.80 million (14.9%), Hong Kong with USD 722.81 million (11.4%), China with USD 645.57 million (10.1%), and Singapore with USD 266.48 million (4.2%).

Meanwhile, import of electronic products grew by 14.2% to USD 2.51 billion in January, while mineral fuels, lubricants and related materials went up by 7.1% to USD 1.62 billion.

Other import commodities that saw increases were transport equipment (up by 8.5% to USD 906.22 million), industrial machinery and equipment (up by 20% to USD 592.90 million), and iron and steel (up by 17.8% to USD 497.35 million).

China is still the biggest source of imports in January with USD 3.31 billion worth of goods, making up 28.9% of the total imports.

It was followed by Japan with USD 912.71 million (8% share), Indonesia with USD 892.95 million (7.8%), South Korea with USD 862.27 million (7.5%), and US with USD 690.81 million (6%).

George T. Barcelon, chairman of the Philippine Chamber of Commerce and Industry, said in a phone interview that the country’s trade deficit has been increasing over the past few years.

“Locally, we are not producing enough competitive products for the local supplier or manufacturer to serve the market. And as such, it’s cheaper to import. We have quite a big deficit with all the world but also with the ASEAN countries. So those are gaps that must be filled,” Mr. Barcelon said.

“Because every time we have a trade deficit, in other words, it translates to giving jobs to countries outside, and the jobs are not here in our country,” he added.

Mr. Barcelon also mentioned the uncertainties brought about by the looming trade war by the US government under the Trump administration.

“One of the issues on the mind of businessmen is how our trade will go, because our biggest market is still primarily North America,” he said.

“When you’re uncertain, people will not really going to be eager to invest…there is not much investment since they’re waiting whether the trade war is going to actually happen,” he added in a mix of Filipino and English.

“So that’s like the biggest thing right now in the world economy, what the US will do. Because the US is such a big buyer of our exports,” he said.

In a research note, Chinabank Research said that outlook for the industry may remain bleak this year as ongoing efforts may materialize in the long run.

Chinabank Research added that a significant risk will arise if Mr. Trump proceeds with his plan to impose 25% tariffs on semiconductors this year.

It also said that the shortfall in trade deficit “could widen further this year, with major risk coming from increased uncertainties on global trade policy, as well as Trump’s plan to impose reciprocal tariffs as the US is the top destination for Philippine exports.”

Markets are preparing for the potential impact of the trade policies by US President Donald J. Trump, such as reciprocal tariffs on all countries that tax US imports.

Mr. Trump on Thursday will impose 25% tariffs on Mexican and Canadian goods starting on March 4, along with an additional 10% duty on Chinese imports of medicines, Reuters reported. Early in February, Mr. Trump imposed 10% levy on Chinese imports. — Kenneth H. Hernandez

The national government’s  (NG) budget deficit narrowed year on year in 2024, but overshot the target by 1.48%, the Bureau of the Treasury (BTr) said.

Data from the Treasury released on Thursday showed that the budget deficit shrank by 0.38% or PHP 5.7 billion to PHP 1.506 trillion in 2024 from PHP 1.512 trillion in 2023.

However, it exceeded the PHP 1.48-trillion deficit ceiling set by the Development Budget Coordination Committee.

“The slight variance versus the PHP 1.484-trillion deficit program was primarily due to a higher outturn in government spending including those charged to unprogrammed appropriation, as well as defrayment of accounts payables,” the Treasury said.

As of end-2024, the deficit as a share of gross domestic product (GDP) settled at 5.7%, lower than 6.2% at end-2023 but slightly higher than the target of 5.6%.

BTr data showed revenue collection jumped by 15.56% to PHP 4.42 trillion and exceeded its PHP 4.27-trillion target due to better-than-expected non-tax revenue collections.

“This is equivalent to 16.72% of GDP, the highest revenue effort in the last 27 years, since 1997,” the Treasury said.

Tax revenues rose by an annual 10.83% to PHP 3.8 trillion in 2024 but fell short of the PHP 3.82-trillion target by 0.51%.

Collections by the Bureau of the Internal Revenue (BIR) increased by 13.29% year on year to PHP 2.852 trillion, driven by increased value-added tax (VAT) collections. It surpassed the PHP 2.849-trillion target by 0.09%.

On the other hand, the Bureau of Customs’ (BoC) revenues went up by 3.79% to PHP 916.7 billion in 2024 but fell short of the PHP 939.7-billion target by 2.45%

The BTr attributed the lower Customs collections to the reduced tariff on rice and selected electric vehicles, as well as the extension of lower tariffs on meat products.

“The increase is attributable to the growth across duties, VAT, and excise collections, which is among the effects of the bureau’s strengthened digitization, inspection, and border protection efforts implemented during the year,” the BTr said.

Meanwhile, nontax revenues surged by 56.61% to PHP 618.3 billion in 2024, exceeding the full-year target PHP 449.6 billion by 37.53%.

“The better-than-expected outturn was primarily due to strengthened efforts to generate windfall collections such as that from the Public-Private Partnership (PPP) concession fee (PHP 30 billion) and the PHP 167.2-billion fund balance transfers from the Philippine Health Insurance Corp. (PHIC) and Philippine Deposit Insurance Corp. (PDIC),” the Treasury said.

“Deducting the fund balance transfers, total nontax collections of PHP 451.1 billion still exceeded the adjusted full-year program by 0.33% (PHP 1.5 billion).”

The Treasury’s income grew by 24.48% to PHP 283.4 billion last year and surpassed the PHP 187-billion target by 51.52%. This was due to “higher dividend remittances, interest advances from government-owned and -controlled corporations, guarantee fees, and NG share from the Philippine Amusement and Gaming Corp. profits.”

Revenue from other offices more than doubled to PHP 335 billion from PHP 167.2 billion in 2023. It also exceeded its PHP 262.6-billion program by 27.56%.

At the same time, government expenditures rose by an annual 11.04% to PHP 5.925 trillion in 2024. This was 2.97% higher than its PHP 5.754-trillion annual program.

“The strong disbursement performance was largely driven by infrastructure and other capital outlays of the Department of Public Works and Highways (DPWH),” the BTr said.

It also cited the “maintenance and other operating expenses for various health and social protection programs, and personnel services expenditures due to the implementation of the first tranche of salary adjustments of qualified civilian government employees.”

Primary spending — which refers to total expenditures minus interest payments — increased by 9.65% to PHP 5.16 trillion last year. It was 3.43% higher than the programmed PHP 4.999 trillion.

Interest payments (IP) jumped by 21.48% to PHP 763.3 billion due to the “higher interest rates and less favorable foreign exchange rate conditions.” However, it was 0.02% lower than the revised program of PHP 763.4 billion.

December deficit

In December alone, the NG’s budget deficit also sharply narrowed by 17.82% to PHP 329.5 billion from PHP 401 billion in the same month in 2023.

Revenue collection rose by 20.99% to PHP 314.7 billion in December, as tax revenues inched up by 2.01% to PHP 251.6 billion.

Broken down, BIR collection went up by 5.48% to PHP 183.8 billion, while Customs collection slipped by 6.38% to PHP 66.7 billion.

Meanwhile, nontax revenues surged by 369% to PHP 63.1 billion, as Treasury revenues climbed by 348% to PHP 50.7 billion.

On the other hand, government spending fell by 2.55% to PHP 644.2 billion in December.

Primary spending slid by 2.36% to P586.2 billion while interest payments dropped by 4.45% to PHP 58 billion.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the slightly lower deficit in 2024 largely reflected higher government expenditures.

“Higher prices and election-related spending could have partly led to the increase in government expenditures in 2024,” he said.

Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message that the fiscal performance “demonstrates a delicate balancing act between revenue mobilization and expenditure management amid macroeconomic headwinds.”

“While the deficit narrowed slightly to P1.506 trillion, the achievement is noteworthy given the substantial 21.48% surge in interest payments that created significant expenditure pressure,” he said.

“The narrowing deficit trajectory, despite missing the precise target, still represents significant fiscal consolidation progress, with the deficit-to-GDP ratio improving from 6.2% to 5.7%, continuing the favorable trend since the post-pandemic high of 8.6% in 2021,” Mr. Roces added. — A.R.A. Inosante

Big banks’ reserve requirements are seen to be slashed further to zero in the near term, Security Bank said.

“Our forecast is that even in the next couple of years, there will still be cuts,” Security Bank Corp. Vice-President and Research Division Head Angelo B. Taningco said in mixed English and Filipino.

Mr. Taningco said they expect the central bank to reduce the reserve requirement ratio (RRR) by 200 basis points (bps) next year, 150 bps in 2027 and another 150 bps in 2028.

This would bring the current 5% reserve requirement for big banks to zero by 2028.

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. earlier said the central bank is eyeing to bring down banks’ reserve requirements to zero before his term ends in 2029.

The BSP last week announced it will cut the RRR of universal and commercial banks and nonbank financial institutions with quasi-banking functions by 200 bps to 5% from 7%, effective March 28.

It will also reduce the RRR for digital banks by 150 bps to 2.5%, while the ratio for thrift lenders will be lowered by 100 bps to 0%.

Rural and cooperative banks’ RRR has been at zero since October, the last time the BSP cut reserve requirements.

From a high of 20% in 2018, the central bank has since brought down the RRR to single-digit levels.

Further lowering reserve requirements could lead to further financial intermediation and make the usage of capital more efficient, Mr. Taningco said.

“It would lead to more growth prospects because you have additional funds,” he added.

The RRR is the portion of reserves that banks must hold onto rather than lending out. When a bank is required to hold a lower reserve ratio, it has more funds to lend to borrowers.

Several economists estimated that the RRR cut will release PHP 300 billion to nearly PHP 400 billion of additional liquidity in the economy.

For this round, Security Bank estimated that PHP 325 billion will be injected into the financial system.

“This was part of the plan, gradual (reduction) every year until it reaches zero. The timing was just what we didn’t expect, it came a bit early.”

Mr. Taningco said there is a need to make sure the reductions are implemented at a gradual pace as the central bank is juggling inflation, growth and exchange rate stability.

“More liquidity is inflationary. So, it’s a balance. That’s why it’s gradual and not one time, big time. In theory, we could bring the 5% down to zero, but that would be inflationary.”

The central bank has said the risks to the inflation outlook have become “broadly balanced” for this year and the next.

It expects inflation to average 3.5% this year and 3.7% in 2026, both within the 2-4% target range.

“If we go from 5% to zero, how many billions is that? That’s already about a trillion. If it’s done all at once, the peso may weaken significantly. So, we are trying to avoid that excessive volatility,” Mr. Taningco added.

For the past months, the peso has been under pressure amid the dollar surge. The local unit fell to the record-low PHP 59-per-dollar level thrice last year, twice in November and once in December.

The RRR cut would also boost bank lending, Mr. Taningco said, though this may not necessarily be “substantive” growth.

The latest BSP data showed bank lending jumped by 12.2% year on year to PHP 13.1 trillion in December, its fastest growth in two years. — Luisa Maria Jacinta C. Jocson