BSP signals another rate cut in August

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. indicated that the central bank is considering another 25-basis-point (bps) reduction in its key interest rate as early as August, according to a report by Manila Bulletin.

“A further reduction in the key interest rate is 'on the table’,” Remolona told reporters on the sidelines of the ceremonial signing and go-live of Open Finance for Investing in Personal Equity and Retirement Account (PERA) pilot.

Remolona cited positive developments regarding uncertainties surrounding United States (US) tariffs, a significant risk factor considered by the Monetary Board (MB) when it decided to cut the key policy rate by 25 bps to 5.25 percent in June.

Despite the 19-percent US tariffs on Philippine exports, Remolona noted that external uncertainties have become somewhat clearer.

He added that the impact of these tariffs on the local gross domestic product (GDP) would be “modest, but growth is already slowing down globally so that could have some effect.”

He expects the Philippine economy to expand by 5.5 percent in the second quarter of 2025.

The central bank may implement two more key policy rate reductions before the year ends.%u2028Last week,Finance Secretary Ralph G. Recto said the BSP could proceed with delivering two quarter-point cuts in the key interest rate by year-end even if the US Federal Reserve decides to pause its easing cycle.

“I think we have room to cut, maybe not two, depending on what happens in the US as well. But as of today, I would assume that we’re okay for two rate cuts,” said Recto, who represents the Marcos administration in the BSP’s policy-setting body.

It can be recalled that the latest rate reduction last month had considered signs of global economic slowdown driven primarily by uncertainty over US trade policy and the Iran-Israel conflict, which has now subsided. Aligning with market expectations, the BSP reduced the key borrowing cost by 25 basis points (bps) to 5.25 percent from 5.5 percent previously.

Consumer price increases climbed slightly in June to 1.4 percent from May’s five-and-a-half-year low of 1.3 percent. A spike in inflation was tempered by a substantial drop in rice prices, which fell to their lowest in three decades, or since 1995 levels.

Excluding May’s 1.3-percent inflation rate, the June headline figure remained the slowest in nearly six years, or since November 2019, based on official data from the Philippine Statistics Authority (PSA). It also fell within the BSP forecast range of 1.1 to 1.9 percent for the month, though it remained below the government’s retained target band of two to four percent.