Fed cut gives BSP more room to ease

THE BANGKO SENTRAL ng Pilipinas (BSP) now has more room to continue its policy easing to support economic growth after the US Federal Reserve delivered a much-awaited cut on Wednesday but may stay cautious amid lingering inflation risks.

- Katherine K. Chan

"The Fed decision is but one additional factor for BSP’s policy calculus... Last night's decision and potential subsequent easing would afford BSP more space to cut rates further should growth remain in need of support," Metropolitan Bank & Trust Co. (Metrobank) Chief Economist Nicholas Antonio T. Mapa said in a Viber message.

Speaking at the Philippine Economic Briefing in Cebu held on Thursday, BSP Deputy Governor Zeno R. Abenoja said the central bank will continue to monitor both inflation and growth.

"This year, we think inflation will average below the target. The target is 2% up to 4%. We may be averaging at around 1.7%... But for the next two years, 2026, 2027, inflation will be back in the middle of the target, around 3.3% to 3.4%, and because of that, we may be near the appropriate interest rates for policy. So, we are moving towards that, what we call the ‘sweet spot’ where interest rates are at the right level to promote growth but at the same time control inflation," he said.

"What are we looking at? We are looking at future inflation or underlying inflation pressures. We are looking at growth numbers. If growth numbers continue to be resilient, we don’t have to do big adjustments, but we will continue to do baby steps. We are looking at inflation expectations... So, for the rest of the year, we still have two policy meetings. It is possible that there could be some policy actions, but we will take it one meeting at a time.”

Last month, the BSP lowered borrowing costs by 25 basis points (bps) for a third straight meeting to bring the policy rate to 5%. It has now reduced benchmark interest rates by a cumulative 150 bps since it began its rate cut cycle in August 2024.

BSP Governor Eli M. Remolona, Jr. has left the door open to one more reduction within this year to support the economy if needed, which would likely mark the end of its easing cycle.