BSP cuts benchmark interest rate to 6.0%

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Wednesday reduced its overnight borrowing rate by 25 basis points to 6.0 percent. The interest rates on the overnight deposit and lending facilities were also adjusted to 5.50 percent and 6.50 percent, respectively, effective Thursday.

The Monetary Board said its decision was based on its assessment that price pressures remain manageable. Oxford Economics said "this decision raises the risk of a weaker currency, particularly as the peso has faced a recent period of depreciation."

In the first half of October, the peso depreciated by 3 percent against the U.S. dollar, as concerns over the U.S. growth outlook eased driven by positive news out of the September jobs report.

The risk-adjusted inflation forecast for 2024 eased to 3.1 percent from 3.3 percent in the previous meeting. However, the risk-adjusted forecasts for 2025 and 2026 increased slightly to 3.3 percent and 3.7 percent, respectively. This outlook is safeguarded by well-anchored inflation expectations.

"The balance of risks to the outlook for 2025 and 2026 has shifted toward the upside owing mainly to potential adjustments in electricity rates and higher minimum wages in areas outside Metro Manila. Meanwhile, downside factors continue to be linked to the impact of lower import tariffs on rice," the BSP said.

The Monetary Board said it expects domestic economic growth to continue to be strong. This reflects improved prospects for household income and consumption, investments, and government spending, which are supported by the start of the monetary easing cycle in August and the announced reduction in reserve requirements in October.

"On balance, the within-target inflation outlook and well-anchored inflation expectations continue to support the BSP's shift toward less restrictive monetary policy. Nonetheless, the monetary authority will continue to closely monitor the emerging upside risks to inflation, including geopolitical factors," it said.

"Looking ahead, the Monetary Board will maintain a measured approach in its easing cycle to ensure price stability conducive to sustainable economic growth and employment," it said.

Oxford Economics said to support growth, it expects the BSP to continue its easing cycle. "We expect another 25bps cut by the BSP at its next meeting in December. However, upside risks to inflation could constrain the pace of further rate cuts thereafter," it said.