BSP cuts policy rate to 5.25%

The Bangko Sentral ng Pilipinas (BSP) eased its policy rate by 25 basis points to 5.25 percent on Thursday as its Monetary Board projects a slower average inflation for this year.

Accordingly, the interest rate on the overnight deposit was set at 4.75 percent while the rate for lending facilities was adjusted to 5.75 percent.

BSP Governor and Monetary Board Chairman Eli Remolona Jr. said recent inflation rates signaled manageable prices of goods and services for the rest of the year. "The Monetary Board took this action as the outlook for inflation moderated," he said.

The Central Bank downgraded its inflation forecast for this year to 1.6 percent from 2.4 percent. However, the outlook for next year slightly increased to 3.4 percent from 3.3 percent. Similarly, BSP increased its forecast for 2027 to 3.3 percent from 3.2 percent.

BSP Deputy Governor Zeno Ronald Abenoja said cheaper food and moderate consumption of goods and services will continue to drive low overall inflation.

"The slowdown in food inflation is something we have been observing for the past four to five months and we think it will continue to spill over in the inflation dynamics moving forward," he said.

Abenoja added that businesses might lower their prices of goods or services in attracting consumer demand amid economic uncertainties brought by Trump's tariffs and armed conflict between Israel and Iran.

"Domestic economic activity continued to be firm but there could be some moderation," the BSP official said.

Abenoja said global oil prices could temporarily rise following the geopolitical tensions between Iran and Israel. He shared that Dubai crude oil prices might increase to $71 per barrel, higher than the spot market prices of $61 to $64 per barrel this year.

"Overall, the possible increase in production of oil coming from OPEC+ countries and muted demand from the global economy could help stabilize oil prices below the highs we saw in the past year," Abenoja said.

Remolona said the Monetary Board is also closely monitoring risks from electricity rate adjustments and higher rice tariffs.

The lower BSP policy rate was announced after overall inflation further slowed to 1.3 percent last month from 2.9 percent in January, leading to an average inflation of 1.9 percent for the first five months based on data from the Philippine Statistics Authority.

BSP targets a minimum overall inflation of 2 percent.

Possible looser policy

"If things remain on track we'll probably cut once more this year," Remolona said. The Monetary Board has three more monetary policy meetings this year.

He said the reduction size to the BSP policy rate will likely be 25 basis points.

Remolona stressed that the Monetary Board will remain vigilant in monitoring domestic and external risks to determine future BSP policy adjustment levels and timing.

A lower BSP policy rate encourages more household and corporate consumption through lower interest rates from banks and other financial institutions.

"Going forward, the BSP will safeguard price stability by ensuring monetary policy settings are conducive to sustainable economic growth and employment," he said.

"On balance, the Monetary Board sees the need for a more accommodative monetary policy stance," Remolona continued.