BSP cuts policy rate by 25 bps to 5.5%

BSP Governor Eli M. Remolona, Jr. Photo from Ian Nicolas Cigaral/Philippine Daily Inquirer

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) on Thursday cut the key rate by a quarter point, as softer inflation allowed monetary authorities to resume their easing cycle in the face of global headwinds from sweeping US tariffs.

The decision of the powerful Monetary Board (MB) lowered the overnight rate that banks use as a guide when pricing loans to 5.5 percent.

All 13 economists polled by the Inquirer last week saw it coming. And the outcome of the MB’s meeting put the total rate cuts under the current cycle at 100 basis points (bps).

Thursday’s action made the Philippines the first central bank in Southeast Asia to decide on monetary policy in the wake of the April 2 “Liberation Day” announcement of US President Donald Trump, who unveiled a relatively milder 17 percent tariff on Filipino goods coming to America.

At the same time, the MB’s meeting happened hours after Trump, in a stunning about-face, announced a 90-day pause for countries hit by higher US tariffs.

READ: The week that Trump pushed the global economy to the brink with tariffs — and then pulled back

While the whole world was worried about the impact of heightened trade protectionism on economic growth, BSP Governor Eli Remolona Jr. said the Philippines was experiencing something that many countries do not: tame inflation.

The benign price growth, in turn, afforded the central bank enough room to cut rates again, Remolona said.

“Like the rest of the world, we’re looking at slower growth. But unlike the rest of the world, we’re also looking at lower inflation,” the BSP chief said.

“The lower inflation rates that we’re looking at give us more degrees of freedom,” he continued, adding that the BSP was hoping to cap its rate-cutting cycle within the year.

“We contemplate further cuts this year.”

Less uncertainty

Latest data showed inflation had softened to a near five-year low of 1.8 percent in March, better than consensus following slower hikes in food and transport costs.

READ: Philippine inflation slowed to 1.8% in March, a near 5-year low

And price growth would likely stay within the 2 to 4 percent official target range this year. The central bank lowered its worst-case inflation forecast for 2025 to 2.3 percent, from 3.5 percent previously.

But beyond inflation, Remolona said the BSP was more comfortable now than before in deciding on monetary policy, as the post-Liberation Day figures helped clear some of the uncertainties that had bothered policymakers previously.

“The advantage of the announcement of the reciprocal tariffs is [that] we now have numbers to feed into the analysis. That’s a big thing. It clears up a lot of the uncertainty,” he said.

“Of course, there’s a 90-day suspension of these tariffs, and the tariffs themselves could change. So there’s still some uncertainty, but there’s less of it than before,” he added.

In a commentary, Joe Maher, assistant economist at Capital Economics, said the combination of low inflation and lingering tariff uncertainty “supports the case for further monetary easing.”

“Our view is for 75 bps of further easing in 2025, which is more dovish than that of the consensus,” Maher said.