BSP cuts interest rate 25 basis points

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) [link] decided to cut interest rates by 25 basis points to 6.25% (from 6.50%). This is the first rate cut since 2020, and the first time the interest rate has changed in any way (up or down) since October of last year. The BSP’s statement on the cut said that its inflation outlook is “supported by well-anchored inflation expectations over the policy horizon”, and that the “balance of risks to the inflation outlook continues to lean toward the downside for 2024 and 2025.” The downside risk to inflation (that inflation will be lower than projected) is “linked mainly to lower import tariffs on rice”. The BSP concluded as follows: “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.”

MB bottom-line: The decision was announced just after the market’s close, so all of the action yesterday was in anticipation of what might happen. Now that we know the BSP has made the cut, we’ll get a chance to see how the market will react to the actual news. Was a cut already fully priced into the market? How will the Peso react relative to the US Dollar? The last trade was with a 56-handle, so that has to give some confidence. Getting real for a second, the rate cut itself is almost meaningless. It’s just 25 basis points. That’s not going to be the difference between a young family buying a house or continuing to rent. It’s the signal that the cut represents that matters most. It’s the perception that better times might be ahead, that money might become cheaper in future months–that’s what matters more. I like that the BSP has gone its own way without waiting for the US Federal Reserve to take the lead. We’ve known forever that high interest rates were not going to be effective at solving our own supply-side price problems.

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