Philippine central bank chief sees rate cut more likely in 2025

The window for the Philippine central bank to start reducing the key rate in the second half of 2024 is narrowing as the risk that inflation may breach its target for a third straight year rises, according to Philippine central bank governor Eli Remolona.

“We’re looking at staying tight for a while,” Remolona said of the policy stance in an interview on Monday (Apr 15) at the Bangko Sentral ng Pilipinas (BSP) in Manila. Monetary easing will more likely begin in the first quarter of 2025, and the cuts won’t be huge – just enough to bring the benchmark closer to the neutral rate of about 6 per cent from the current 6.5 per cent, he said.

As things stand, the odds are “over 56 per cent” that inflation will breach the BSP’s 2 per cent-4 per cent target again this year and “that’s a reason to be hawkish,” Remolona said. “That has to change significantly before we decide to cut,” he said, as he also ruled out further increasing the key rate that’s at a 17-year-high.

Policymakers across the world – including in the Philippines – have signalled they’re not in a rush to lower borrowing costs and wanted to see more evidence of firmly decelerating price pressures before pivoting to an easing stance.

Rice inflation in the Philippines hit a fresh 15-year high in March while the peso has slumped to the lowest in almost six months, weakening along with other emerging currencies as the Middle East conflict intensifies. Remolona said he’s comfortable with the peso’s current level and that the BSP has hardly been intervening in the foreign currency market.

An “extraordinarily weak” economy would increase the need for a rate cut, the governor said, but added that he doesn’t see indications of that at the moment. The Philippines, one of the fastest-growing economies in Asia, is forecast to expand by 5.8 per cent this year, according to the median estimate in a Bloomberg survey of economists, after rising by 5.5 per cent in 2023.

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Philippine inflation, meanwhile, quickened for a second month to 3.7 per cent in March with price pressures seen persisting until next quarter, longer than the BSP previously expected. The peso fell for a third day against the dollar, closing 0.5 per cent lower on Monday to 56.808, the lowest since Oct 31.

When the central bank does start its easing cycle, it is likely to stop when the policy rate reaches 5 per cent, HSBC Holdings economist Aris Dacanay said in a note on Friday.

“Maintaining a policy rate that is higher than pre-pandemic levels will help mitigate any volatility in the peso, attract the financing needed to fund the economy’s ambitious infrastructure agenda, and help keep inflation within the central bank’s 2-4 per cent target band,” Dacanay said. BLOOMBERG