BSP takes 6% policy rate slash

The Bangko Sentral ng Pilipinas (BSP) on Wednesday further eased its policy rate by 25 basis points to 6 percent due to a “manageable” inflation.

Accordingly, the BSP will impose interest rates on the overnight deposit at 5.5 percent and the lending facilities at 6.5 percent starting today.

BSP Governor Eli Remolona Jr. said inflation this year could hit 3.1 percent, better than the 3.3 percent the central bank announced in August and falls within its target of 2 to 4 percent.

“Downside factors continue to be linked to the impact of lower import tariffs on rice,” he said during the BSP’s monetary policy meeting at its main building in Manila City.

Overall inflation last month dropped to 1.9 percent from 3.3 percent in August as rice prices slid to 5.7 percent from 14.7 percent, based on data from the Philippine Statistics Authority (PSA).

The government has been imposing a lower tariff on imported rice at 15 percent from 35 percent, while India, the world’s largest exporter of the commodity lifted its export ban recently.

Economic officials expect the lower rice tariff to pull 1.8 percentage points from overall inflation.

However, Remolona said inflation might increase slightly to 3.3 percent next year and 3.7 percent in 2026 partly due to higher global oil prices.

“Nevertheless, this outlook is safeguarded by well-anchored inflation expectations,” Remolona said.

He said possible increases in oil can pull up electricity prices and prod workers in the provinces to request higher minimum wages to comfortably meet their basic needs.

These statements came after Iran, a member of the Organization of the Petroleum Exporting Countries, relaunched attacks against Israel on 1 October to allegedly avenge the killings of Iranian militant leaders.

Iran remains source of worry

Economists worry that Iran’s oil facilities could be damaged as Israel plans to retaliate.

However, given the recent lower domestic inflation, Remolona said the BSP is taking a “less restrictive” monetary policy so far, and that another policy rate reduction of 25 basis points in December is possible.

“The monetary authority will continue to closely monitor the emerging upside risks to inflation, including geopolitical factors,” Remolona said.

“Looking ahead, the Monetary Board will maintain a measured approach in its easing cycle to ensure price stability conducive to sustainable economic growth and employment,” he added.

Remolona said the new BSP policy rate is enough to help the economy sustain growth as households and firms will be encouraged by lower interest rates to avail loans for various purchases or raise capital for business expansions.

Strong growth, prospects

“The Monetary Board expects domestic economic growth to continue to be strong. This reflects improved prospects for household income and consumption, investments, and government spending, which are supported by the start of the monetary easing cycle in August and the announced reduction in reserve requirements this month,” he said.

Remolona said another policy rate reduction of 25 basis points in December is possible,

The Development Budget Coordination Committee projects economic growth this year to settle within 6 to 7 percent partly due to continued government and household spending.

Amid a higher interest rate environment, household consumption remained stable at 4.6 percent growth in the first and second quarters of the year, according to the PSA.