THE Monetary Board has reduced key policy rates ahead of the United States Federal Reserve in the hope that lower interest rates may encourage better access to credit for Filipinos, according to the Bangko Sentral ng Pilipinas (BSP).
On Thursday, the BSP delivered one of at least two of the expected 25- basis-point rate cuts this year. The policy move brought down BSP’s Target Reverse Repurchase (RRP) Rate to 6.25 percent from 6.5 percent.
The BSP also said the interest rates on the overnight deposit and lending facilities were adjusted downward to 5.75 percent and 6.75 percent, respectively.
“I’d say it will make, we hope, make lending rates lower, make some credit, make credit easier. And that has side effects on consumption, on investment, and so on. So it’s one move [to boost the economy]. We may need further moves in the same direction, but we’ll see,” BSP Governor Eli M. Remolona Jr. said in a briefing on Thursday.
Remolona said based on the recent performance of the economy, the 6.3 percent growth was driven by construction and strong public spending.
Data from the Philippine Statistics Authority (PSA) showed construction posted a 16.1-percent growth in the second quarter while Government Final Consumption Expenditure grew 10.7 percent.
PSA data also showed that public construction, which is also the data for “general government,” grew by 21.8 percent in the second quarter of 2024.
This, Remolona said, may not be sustainable especially since Household Final Consumption Expenditure (HFCE) was “relatively weak. The PSA said while HFCE accounted for over 70 percent of GDP, it only grew 4.6 percent in the second quarter.
“We’re somewhat more confident in the inflation numbers coming down than in the GDP numbers going up,” Remolona said. “Consumption was relatively weak. So it doesn’t look like something that could easily be sustained. And so that we went for a cut, partly because of that.”
The BSP said headline inflation is projected to trend downward to within the government’s 2 to 4 percent target range despite the uptick in July.
However, the risk-adjusted inflation forecast for 2024 was reduced to 3.3 percent. The baseline forecast for 2024 was adjusted to 3.4 percent from the initial 3.3 percent.
The risk-adjusted forecast for 2025 now stands at 2.9 percent. This is also lower than the baseline estimate of 3.1 percent which was adjusted downward from 3.15 percent.
For 2026, the BSP said its risk-adjusted forecast was pegged at 3.3 percent. This is higher than the 3.2 percent baseline estimated by the central bank.
“The balance of risks to the inflation outlook continues to lean toward the downside for 2024 and 2025 with a modest tilt to the upside for 2026. The downside risks are linked mainly to lower import tariffs on rice, while upside risks could come from higher electricity rates and external factors,” BSP said in a statement.
The BSP also said the Monetary Board also expects domestic demand prospects to hold firm. Despite tight financial conditions, second-quarter GDP growth has been solid and the unemployment rate has declined.
Public investment and the easing price pressures and robust employment conditions, BSP said, are expected to support economic activity.
With inflation on a target-consistent path, the current macroeconomic outlook supports a calibrated shift to a less restrictive monetary policy stance. Nonetheless, monetary authorities remain mindful of lingering upside risks to prices.
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