BSP Governor Signals Potential Rate Cut Later This Year
MANILA – Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. has indicated that a reduction in interest rates could be on the horizon within the year, suggesting that the economic conditions may allow for such a move. Speaking to reporters at the annual reception for the banking community, Remolona shared his optimism about the possibility, albeit hinting that the first semester might be premature for such action.
According to Philippines News Agency, the BSP has maintained policy rates steady in its recent meetings after a series of increases totaling 450 basis points since May 2022 aimed at controlling inflation. The governor highlighted the expected impact of base effects on the January 2024 inflation figures, projecting a potentially lower rate due to the high inflation benchmark of January 2023. He anticipates an adjustment in the inflation rate in the second quarter of 2024.
The December 2023 headline inflation rate eased to 3.9 percent, marking the lowest rate since February 2022 and aligning with the government’s target range of 2 to 4 percent. Official inflation data for January 2024 is awaited in the coming month. Remolona also noted that robust economic growth would provide BSP with more flexibility, potentially allowing for further rate hikes if necessary. The Philippine economy recorded a 5.5 percent growth in the first three quarters of 2023, with full-year growth data expected to be released soon.
In his speech at the event, the BSP chief outlined the central bank’s objectives, emphasizing the enhancement of the monetary policy framework, anchoring inflation expectations, and strengthening systemic risk oversight. Remolona referred to the banking sector’s resilience amid challenges, including the global financial disruptions in March 2023, as evidence of the system’s health and stability.
Furthermore, Remolona discussed the BSP’s intentions to deepen the Philippines’ capital markets, diversifying funding sources to mitigate the impact of potential credit crunches. He also highlighted the central bank’s sustainability and inclusion initiatives, aiming to support an inclusive adaptation program and leveraging digital technology to reach underbanked sectors. This approach is expected to foster a more inclusive financial ecosystem, ensuring broader access to financial services and opportunities.