Why the BSP Cutting Interest Rates Again Matters For The Economy
The Bangko Sentral ng Pilipinas (BSP) has lowered policy rates for the second consecutive time during its meeting last week as the government tries to bolster the economy amid external global threats and as inflation continues to ease.
Lowering policy rates is crucial for local businesses, consumers, the government, and other institutions to make it less costly to borrow funds or finance services.
The country’s Monetary Board on June 19 cut the target reverse repurchase rate by 25 basis points (bps) to 5.25 percent from 5.5 percent, which was the lowest level in two and a half years. A basis point in finance is used to measure incremental changes in the interest rates linked to financial instruments.
This is also used to discuss interest rate changes or credit spread variations that can give information on local and global markets.
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The Philippine central bank is likely to cut rates by another 25 bps if “things remain on track,” BSP Governor Eli Remolona Jr. told a press briefing after announcing the cut.
With the Monetary Board set to hold three more policy meetings this year, Remolona noted that the country is bracing for a dip in the global economy stemming from the war in the Middle East and the Trump administration’s reciprocal tariffs.
Inflation eased to its slowest pace in over five years in May at 1.3 percent, which is below the Philippine central bank’s target of two to four percent.
Remolona has said cooling inflation gives the central bank “plenty of room” to ease its policy stance even more this year, but noted that it can’t cut by too much to avoid stoking prices.
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“This (BSP’s rate cut) signals accommodative monetary policy/monetary easing amid benign inflation and could thereby stimulate more investments, expansion projects, the creation of more jobs/employment, and other business/economic activities,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort told Esquire Philippines in an interview.
Despite the burgeoning war between Israel and Iran, BSP Deputy Government Zeno Abenoja has said that even though the world is set to face jacked up oil prices, an increase in oil production could still help stabilize oil prices below “the highs that we have seen the past year.”
“But even with the more recent numbers of international oil prices, it continues to be relatively lower than what we are seeing last year,” he said.
Reuters reported on June 20 that the global oil crude benchmark Brent is up around 20 percent so far this month and set to see its biggest monthly jump since 2020 amid heightened tensions between Israel and Iran.
"The Monetary Board sees the need for a more accomodative monetary policy stance," Remolona said. "Emerging risks to inflation from rising geopolitical tensions and external policy uncertainty require close monitoring."
