The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) further reduced policy rates by another 25 basis points on Thursday, noting that inflation will remain within target range while growth outlook weakened.
The BSP has so far reduced policy rates by a total of 175 basis points since last year.
The latest cut brings the BSP’s Target Reverse Repurchase (RRP) to 4.75 percent and the interest rates on the overnight deposit and lending facilities to 4.25 percent and 5.25 percent, respectively.
In a briefing, BSP Governor Eli Remolona Jr. noted that the outlook for inflation is benign and well within the target range but the outlook for economic growth weakened.
Remolona said the decision reflects the BSP’s latest reading of economic conditions as well as adjustments to its model which now reflect the new importance of business sentiment in light of the issues related to government infrastructure spending.
“We now find the inflation outlook to be quite benign. Inflation expectations remain well-anchored but adjustments to electricity rates and possible increases in tariffs on rice imports pose some risks, but these risks look limited,” he said.
The BSP projects inflation to settle at 1.7 percent this year.
The forecast stands at 3.1 percent for 2026, down from the earlier 3.3 percent while the projection for 2027 was also revised downward to 2.8 percent for 2027 from 3.4 percent.
Remolona, however, said that the outlook for growth has softened in the near term.
“Governance concerns on public infrastructure spending have weighed on business sentiment. The stock market has declined and there are now fewer companies with expansion plans. Weaker growth means lower demand and lower inflation,” Remolona said.
“As the extent of the issues related to infrastructure spending became clear, our estimates of the output gap needed to be calibrated. We now think the gap is wider than we thought,” he added.
BSP Deputy Governor Zeno Abenoja said that during the previous assessment, the BSP is looking at growth rates close to the low end of the government’s target.
The previous growth projection was at least 5.5 percent for 2025 and at least 6 percent for 2026.
“Right now, we’re looking at the near term outlook to be lower than we initially anticipated. There’s greater probability that we will be slightly below those targets set by the government. Of course, a lot of this depends on what the governor has mentioned, the infrastructure spending. How will it evolve in the end of the year and into next year,” Abenoja said.
“So we’re looking at this very closely. There could be some adjustments later on. But we want to better understand the response of the national government and also the business sentiment, how it evolves during this process,” he added.
The Monetary Board sees scope for a more accommodative monetary policy stance.
“All in all we see more scope for a more accommodative monetary policy. The favorable inflation outlook and moderating domestic demand provide room for monetary policy to further support economic growth and employment,” Remolona said. (PNA)