Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. signaled further rate cuts despite global inflationary risks from US President Donald Trump’s global tariffs blitz.

Remolona said the easing inflation level could support reductions of the BSP policy rate as households and businesses generate savings to drive economic growth.

“Trade shocks tend to affect investment in the longer term, partly because investment goods tend to be highly dependent on imports,” he said.

“However, slowing inflation gives the BSP leeway to reduce policy rates,” Remolona continued.

The BSP chief shared his remarks in a statement released to the media on Saturday. The BSP said these were Remolona’s responses in a seminar held on the sidelines of the International Monetary Fund-World Bank Spring Meetings in Washington, D.C., on 25 April.

The BSP Monetary Board lowered the policy rate to 5.5 percent by 25 basis points on 10 April. This was after inflation slid to 1.8 percent in March, the lowest in over four years, according to data from the Philippine Statistics Authority.

Last month, inflation further eased to 1.4 percent as prices of rice, vegetables, seafood, and transport declined. However, prices of many other goods and services or non-volatile items remained stable at 2.2 percent core inflation. Relatively elevated prices were seen in housing, electricity, and restaurants and accommodation services.

Lingering uncertainties

Remolona said adjusting the BSP policy rate will still require a high level of caution as the government aims to sustain strong foreign investments and overall economic growth through debt instruments while export revenues moderate.

“Supply shocks come and go, but trade shocks that we are seeing now tend to stick around,” Remolona said. “Unfortunately, monetary policy doesn’t have the tools for that kind of shock,” he added.

According to the latest report by the International Institute of Finance (IIF) on global debt markets, investors tempered fund placements in emerging countries in Asia as they demanded higher rates for US 10-year government bonds.

The IIF said 10-year US real yields surged more than 60 basis points in just over a week. At the same time, debt outflows in emerging Asia accelerated to $600 million in April, offsetting the robust performance in March.

US President Donald Trump announced a 17 percent tariff on Philippine goods to the US, which was the country’s top export market in March, accounting for 16.8 percent of its total export revenues.

“Efforts by the US administration to fast-track bilateral trade arrangements with selected partners have become more visible, offering a potential offset to broader uncertainty but unlikely to materially shift investor positioning in the near term,” IIF said. “The increase in US Treasury yields also puts pressure on borrowing costs of emerging markets in Asia,” the institute added.