Cut rates or pause? BSP mulls over December move

A third interest rate cut and an easing pause are both on the table of the Bangko Sentral ng Pilipinas (BSP) in December, although Governor Eli Remolona Jr. stressed that the central bank is still on easing mode.

“We’re still in the easing cycle. Either we cut in December or we cut in the next meeting. But gradually,” Remolona told reporters on the sidelines of a dialogue hosted by the BSP and the International Monetary Fund on Tuesday.

But should the policy-making Monetary Board (MB) unleash a third rate reduction at its meeting on Dec. 19, Remolona said a quarter point cut would be the appropriate size of adjustment—not just for next month but also for future easing moves of the central bank in 2025.

READ: BSP delivers 25-bp rate cut; more to come

Overall, the BSP chief said cumulative rate cuts worth 100 basis points (bps) are possible next year.

“There could be more (rate cuts), there could be less. But that’s in the ballpark,” he added.

Remolona’s clear signal of continued relaxation of monetary policy marked his first public comments since Donald Trump’s victory in the US presidential elections. Already, Trump’s threat to start a global trade war is driving “safe haven” demand for dollars and tempering expectations for US Federal Reserve cuts, pressuring currencies like the Philippine peso.

The peso is currently trading past the 56 to 58-per dollar assumption of the Marcos administration for this year, with Trump’s election win fueling more volatility that’s pulling the local unit close to the record-low 59.

That said, some analysts believe that the BSP might have to slam the brakes on its interest rate cuts should the peso remain under pressure. Simply put, hitting pause on easing might temper capital outflows that could further weaken the local currency.

The central bank entered its easing era last August with a 25-bp reduction to the benchmark rate. In October, the BSP further trimmed the policy interest rate by a quarter point to its current level of 6 percent.

For now, Remolona said he’s not worried about the peso’s weakness, adding that the BSP had been intervening in the foreign exchange market in “small amounts” to prevent a sharp slump that could stoke inflation.

The BSP boss also believes that the weaker-than-expected economic expansion in the third quarter was just an “aberration”. Inflation, he added, would remain within the 2 to 4 percent target range of the central bank for November despite the onslaught of powerful typhoons.

“I think economic growth would bounce back in the fourth quarter,” Remolona said.