BSP signals rate, reserve cuts in 2025

BAGUIO CITY, Philippines — The Bangko Sentral ng Pilipinas is likely to implement two 25-basis-point cuts – one in each semester – this year, the BSP chief said.

BSP Governor Eli Remolona Jr. said a 75-bp reduction might be too aggressive given the need for policy insurance against inflation risks.

“I think that sounds about right – 25 (bps) in the first half, 25 (bps) in the second half,” Remolona told participants in the BSP’s 2025 Media Information Session here.

The BSP chief earlier said a widening negative output gap could justify further monetary policy easing, following the Philippine economy’s weaker-than-anticipated gross domestic product (GDP) growth in the fourth quarter of 2024.

The output gap, which measures the difference between actual and potential economic output, remains a key consideration for monetary policy. A negative gap suggests the economy is underperforming, which could support the case for interest rate cuts.

However, Remolona said lowering borrowing costs by a total of 100 bps this year might be too much.

“Central banks around the world learned to do things gradually except when there is an impending hard landing,” he said.

“We don’t see a hard landing in the near future… So there’s no need for a 100-basis-point (cut),” he said.

The BSP’s Monetary Board slashed policy rates by 25 bps during its policy meeting last December, bringing the key rate down to 5.75 percent. The central bank has delivered a total of 75 bps rate cuts since August 2024.

Before the rate cuts, the BSP kept its policy rate unchanged for six consecutive meetings since November 2023. From May 2022 to October 2023, the central bank had aggressively raised rates by a total of 450 bps to rein in inflation.

Apart from rate cuts, the BSP is also considering a 200-bp reduction in big banks’ reserve requirement ratio (RRR), targeting a drop to five percent from the current level of seven percent this year.

“We’re still talking about it, but hopefully, we can lower it to five percent this year,” Remolona said, hinting that a mid-year adjustment – possibly in June or July – is on the table.

While both rate and RRR cuts serve to stimulate the economy, he pointed out that their impacts on liquidity differ.

“The nice thing about the reserve requirement is it affects both the deposit rate and the lending rate. So it should raise the deposit rate a little bit if you cut the reserve requirement while lowering the loan rates,” Remolona said.

He acknowledged that slower GDP growth played a role in BSP’s policy considerations.

“Of course it does (affect our decisions), but we’re looking at more than just one number. We’re looking at what happens,” he said.