As corruption scandal darkens economic outlook, BSP unexpectedly cuts interest rates

THE BANGKO SENTRAL ng Pilipinas (BSP) unexpectedly slashed its policy rate by 25 basis points (bps) for a fourth straight meeting on Thursday, citing a weakened economic outlook and declining investor confidence amid a widening corruption scandal.

- Katherine K. Chan

The Monetary Board reduced the target reverse repurchase rate by 25 bps to 4.75%, the lowest in three years or since September 2022.

Rates on the overnight deposit and lending facilities were also lowered by 25 bps each to 4.25% and 5.25%, respectively.

“The Monetary Board... noted that the outlook for domestic economic growth has weakened. This outlook reflects in part the impact on business confidence of governance concerns about public infrastructure spending,” it said in a statement.

The rate cut came as a surprise as most analysts expected a pause in monetary easing. Only six out of 16 analysts polled by BusinessWorld last week predicted a 25-bp cut.

The central bank has now lowered borrowing costs by a total of 175 bps since it began its easing cycle in August 2024.

After the BSP's announcement, the peso fell by 28.5 centavos to close at P58.235 versus the dollar on Thursday from its P57.95 finish on Wednesday, Bankers Association of the Philippines data showed.

The Philippine Stock Exchange index fell by 0.67% to close at 6,057.40 on Thursday.

"This decision reflects our latest economic conditions as well as judicious adjustments to our model.

These adjustments reflect the new importance of business sentiment in light of the issues related to government infrastructure spending," BSP Governor Eli M. Remolona, Jr. said during a briefing.

A corruption probe into anomalous infrastructure projects has embroiled government officials, including lawmakers, the Public Works department and contractors. They are accused of pocketing millions of pesos in government funds meant for flood control projects, prompting widespread anger among citizens.

Mr. Remolona said the corruption scandal has weakened business sentiment and in turn, weighed on the economic growth outlook in the near term.