Interest Rate Reduction in the Philippines

By Neil Jerome Morales and Mikhail Flores

MANILA (Reuters) – The Philippine central bank reduced its key interest rate by 25 basis points on Wednesday for a second consecutive meeting, leaving the door open for further cuts with medium-term inflation expected to remain within the 2%-4% target range.

The cut, predicted by all 23 economists in a Reuters poll, lowers the target reverse repurchase rate to 6%, the lowest since February 2023.

BSP Governor Eli Remolona stated, "The Monetary Board's decision is based on its assessment that price pressures remain manageable" during a press conference.

Regionally, Thailand's central bank unexpectedly cut its key interest rate on the same day to revive a sluggish economy, while the Bank of Indonesia kept rates unchanged.

The Philippine peso remained stable at 57.73 to the dollar following the BSP's decision.

The BSP revised its baseline inflation forecast for 2024 to 3.1% from 3.4%, but raised projections for 2025 and 2026 to 3.2% and 3.4% from 3.1% and 3.2%, respectively, due to potential adjustments in electricity rates and wages.

Governor Remolona mentioned the possibility of a third quarter-point rate cut in December's meeting and cumulative 100 bps cuts next year. He emphasized that while they prefer gradual adjustments of 25 basis points, it doesn't guarantee adjustments every quarter or meeting.