'More rate cuts likely as BSP shifts stance'

The Bangko Sentral ng Pilipinas may continue easing its policy settings in the coming months, as analysts said the BSP’s latest surprise rate cut marked a decisive shift toward a more dovish stance amid weakening business sentiment and governance concerns in public spending.

- KEISHA TA-ASAN

HSBC ASEAN economist Aris Dacanay said the BSP’s move to reduce the policy rate by 25 basis points (bps) to 4.75 percent, its lowest in three years, was unexpected, but “even more surprising was the dramatic shift in tone.”

He noted that the BSP’s latest statement acknowledged “moderating domestic demand,” a sharp contrast to its earlier view that demand remained firm.

The central bank attributed this change to weaker business confidence following corruption allegations in government flood control projects.

“In explaining the change in outlook, the BSP singled out the impact of the flood control corruption allegations on business confidence and expansion plans,” Dacanay said, citing the Monetary Board’s statement that “the favorable inflation outlook and moderating domestic demand provide room to further support economic activity.”

He said this could signal more rate cuts ahead, noting that BSP Governor Eli Remolona Jr. also disclosed that the central bank is reviewing its estimate of the neutral or “Goldilocks” rate, which is now between four and five percent, lower than previously assumed.