BSP lowers key rate to 5.25%

MANILA, Philippines —  The Bangko Sentral ng Pilipinas (BSP) has lowered interest rates by 25 basis points as inflation outlook softened while global economic headwinds weighed on growth prospects. In a press conference following its third policy review this year, the Monetary Board opted to lower the target reverse repurchase rate to 5.25 percent from 5.50 percent previously.

Likewise, the overnight deposit and lending rates were reduced at 4.75 percent and 5.75 percent, respectively. The central bank has delivered a total of 125 bps rate cuts since August 2024.

“On balance, the Monetary Board sees the need for a more accommodative monetary policy stance,” BSP Governor Eli Remolona Jr. said.

He said the decision came amid a decline in the BSP’s inflation outlook.

The central bank now expects inflation to average just 1.6 percent this year, significantly lower than the previous forecast of 2.4 percent.

However, inflation forecasts for 2026 and 2027 were slightly revised upward to 3.4 percent and 3.3 percent, respectively.

“The Monetary Board also noted indications of deceleration in global economic activity, driven primarily by uncertainty over US trade policy and the conflict in the Middle East,” Remolona said.

“This would lead to slower growth in the Philippines. A rise in oil prices, electricity rate adjustments and higher rice tariffs, would add to inflationary pressures,” the BSP chief said.

Inflation slowed to 1.3 percent in May from 1.4 percent in April, marking the lowest print in nearly six years. Year-to-date, inflation has averaged 1.9 percent, well below the BSP’s two to four percent target.

Still, Remolona said the BSP remains vigilant against emerging risks to inflation from rising geopolitical tensions and external policy uncertainty. The Monetary Board will also continue to assess the impact of previous monetary policy adjustments.

“Going forward, the BSP will safeguard price stability by ensuring monetary policy settings are conducive to sustainable economic growth and employment,” he said.

BSP Deputy Governor Zeno Ronald Abenoja explained the rationale behind the downward revision in the inflation outlook for 2025.

“For 2025, we now recognize the slowdown in food inflation, something that we have been observing for the past five months. We think that it will continue to spillover on the inflation dynamics moving forward,” Abenoja said.

“Second, global oil prices have continued to decline and remain lower than last year. Finally, we anticipate some moderation in domestic economic activity in the near term,” Abenoja added.

Remolona also signaled that additional easing is possible, depending on economic data.

“We have three more policy meetings this year. If things remain on track, we’ll probably cut once more,” he said. “Depending on the data, we may cut twice more – or not at all. But for now, one more 25-basis-point (cut is possible).”

Private sector economists expect the BSP to remain flexible.

Metrobank chief economist Nicholas Mapa said target-consistent inflation allowed the central bank to deliver support to the Philippine economy that faces headwinds from geopolitical developments.

“We expect BSP to be open to further rate cuts in the coming months although adjustments will be contingent on incoming economic data,” Mapa said.

Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said they continue to expect two more rate cuts this year.

“The upsurge in global oil prices over the past week or so amid the escalation of hostilities between Israel and Iran remains only a risk, for now, to our below-consensus inflation forecast of 1.8 percent for 2025,” Chanco said.

Chanco pointed out that oil prices remain down significantly on a year-on-year basis and are expected to stay subdued through early 2026.

The BSP will next meet on Aug. 28 for its fourth policy review this year.