BSP signals rate pause as easing cycle winds down

Eli Remolona Jr. —CONTRIBUTED PHOTO

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) could keep its policy rate unchanged through the end of the year if inflation remains subdued and demand holds up, Governor Eli Remolona Jr. said.

In an interview with Bloomberg TV on Friday, Remolona signaled that the central bank’s easing cycle is nearing its end.

Still, he left the door open to further easing, saying the Monetary Board could consider another reduction later this year if demand shows signs of weakening.

On Thursday, the BSP slashed the overnight borrowing rate by a quarter point to 5 percent, a level that Remolona described as the “Goldilocks” level—neither inflationary nor restrictive to economic growth.

READ: Bangko Sentral cuts rate to 5%, hits ‘sweet spot’ 

In a note to clients, Nomura Global Markets Research said the BSP is approaching the end of its rate-cutting phase, “barring a major shock”.

“BSP’s signal that it is close to the end of its easing cycle looks sensible, in our view, and likely reflects BSP’s assessment that it has delivered significant rate cuts that have been relatively effective,” Nomura economists Euben Paracuelles and Nabila Amani said.

READ: Why interest rates are of interest

Another reduction, they added, would bring total cuts this year to 175 basis points, taking the policy rate to 4.75 percent — below the central bank’s neutral level.

“This in turn is consistent with its guidance today that there is some room to reduce the RRP rate to support domestic demand further, but not by much,” they continued.  /rwd