The Philippines moves closer to policy rate cuts after June hold

THE Philippine central bank signalled it is getting close to easing monetary policy, after holding the benchmark interest rate steady on Thursday (Jun 27) to support the peso.

The Bangko Sentral ng Pilipinas (BSP) left the target rate at 6.5 per cent for a sixth straight meeting on Thursday, as expected by all 22 economists in a Bloomberg News survey.

The central bank expects inflation to cool this year and the next, with economic growth prospects remaining in line with medium-term trends – an out-turn that Governor Eli Remolona said will keep the central bank on track for lowering rates in the third quarter.

“The balance of risks to the inflation outlook has shifted to the downside for 2024 and 2025 due largely to the impact of lower import tariffs on rice,” Remolona said.

That makes an August rate cut somewhat more likely than before, with the quantum of reduction expected to be 25 basis points at a time, he said. A total 50 basis points of cuts this year was on the table, the governor added.

“If we follow the course where we think we are, that could mean 25 basis points in the third quarter, and then 25 in the fourth quarter,” the governor said.

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A cut in August would mean the BSP won’t wait for the US Federal Reserve to pave its interest-rate path. Remolona’s latest comments on easing follow signs of strains in domestic demand from elevated borrowing costs, which were raised by 450 basis points in BSP’s most-aggressive tightening campaign in two decades.

Still, Thursday’s decision to hold the key rate will help the peso, which has been hovering near a record low 59 per dollar for a month. Price growth quickened for a fourth straight month in May, though it has stayed within the BSP’s 2 to 4 per cent target this year. BLOOMBERG