BSP: Rate cuts to spur growth potential

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. is optimistic that the resumption of monetary policy easing will help narrow the gap between the economy’s subpar output growth and its full potential.

- By DERCO ROSAL

"I hope so. That’s [policy easing] our main tool. We hope that our main tool is effective," Remolona said last Thursday, April 10, after the Monetary Board cut key interest rates by 25 basis points (bps), lowering the policy rate to 5.5 percent.

To recall, the BSP said in its December 2024 Monetary Policy Report that the Philippine economy is expected to expand “below potential over the near term” because demand for goods and services is low despite subdued demand-side inflation pressures.

The central bank had said this difference between actual and potential gross domestic product (GDP)—called the negative output gap—will “remain negative until 2025,” before eventually closing by 2026.

These forecasts, based on the BSP’s Policy Analysis Model for the Philippines (PAMPh), considered the five-quarter low GDP growth rate seen in the third quarter of 2024, at 5.2 percent. Economic growth edged slightly up to 5.3 percent in the last three months of last year.

"Expansions in consumption and investment are seen to help narrow the output gap as the impact of previous monetary policy easing takes full effect," the BSP said, referring to the total of 75 bps in interest rate cuts before it paused in February, which are expected to boost borrowings and consumption.