MONETARY authorities face a “large amount of uncertainty” with regard to policy decisions, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said a day after the central bank’s policymaking Monetary Board again cut interest rates to support economic growth.
Remolona, who indicated that the uncertainty stemmed from weak confidence, said in an interview with CNBC on Friday that the latest 25 basis point (bps) rate cut was aimed at boosting sentiment and “help generate more growth down the road.”
Sentiment is down but “beginning to show signs of recovery ... what we call green shoots,” he added, with Thursday’s rate cut “an effort to water those green shoots.”
With inflation under control, Remolona said that monetary authorities had leeway to address economic growth, which slumped to 4.4 last year — missing the government’s target for a third straight year — from 5.7 percent in 2024.
Consumer price growth is likely to pick up but core inflation will go down, he said, adding that the probability of risks materializing was low.
“[G]rowth and confidence are a two-way street,” Remolona said. While resolving the governance issues that have weighed on sentiment will help, he said that BSP could do something on the growth side.
Asked if the central bank was worried about peso volatility following the rate cut, he said that they weren’t worried about day-to-day fluctuations but would intervene if the exchange rate swings became inflationary.
As for how much room was left with regard to further rate cuts this year, Remolona replied, “we’re going to be focusing on inflation...”
“But ... there’s a large element of uncertainty that we’re facing. And that’s how quickly confidence will come back. So that’s where we stand.”
One more rate cut
As this developed, BMI said in a report released on Friday that the BSP was likely to reduce rates one final time in April.
“Given slower growth and benign inflation over the next few months, we forecast BSP to cut by another 25 bps in the next meeting in April,” the Fitch Group unit said.
Thursday’s 25-bps cut to 4.25 percent was the sixth consecutive cut to the policy rate and BMI noted that the central bank had dropped prior statements that the easing cycle was nearing its end.
Rising inflation, the possible impact on the peso and a second-half growth acceleration, meanwhile, likely means that the April cut would be the last for this easing cycle, it added.
Growth will remain the primary consideration for now and is expected to continue to remain sluggish in the first semester. BMI noted that government spending was still being constrained by a corruption probe and exports are also feeling the pinch from higher US tariffs.
Inflation is expected to remain within the lower half of the target range over the next few months before ending the year at 3.1 percent.
The peso, meanwhile, was forecast to hit P59.50 to the dollar by end-December given a weaker external position.
Risks to the rate cut outlook are balanced, BMI said. Continued government inflation spending delays and low inflation could lead to further cuts, while oil price spikes that could push inflation higher would limit further easing.