BSP cuts key rate by 25 basis points as inflation eases

The Bangko Sentral ng Pilipinas (BSP) decided to lower its benchmark interest rate by 25 basis points, bringing the Target Reverse Repurchase (RRP) Rate to 6.25 percent, the Monetary Board announced after its meeting on Thursday.

The move reflects the central bank’s confidence that inflation will continue to decline within the government’s target range of 2 to 4 percent despite a slight increase in July.

With the rate adjustment, interest rates on the overnight deposit and lending facilities were also reduced to 5.75 percent and 6.75 percent, respectively.

“Headline inflation is projected to trend downward,” the Monetary Board said in a statement, noting that the risk-adjusted inflation forecasts for 2024 and 2025 are pegged at 3.3 percent and 2.9 percent, respectively.

The outlook for 2026 stands at 3.3 percent.

The board highlighted that the risks to inflation are expected to be on the downside for 2024 and 2025, primarily due to lower import tariffs on rice.

However, there is a slight risk of inflation edging higher in 2026, driven by potential increases in electricity rates and external factors.

Despite tight financial conditions, the Philippine economy remains resilient.

The country’s Gross Domestic Product (GDP) growth in the second quarter was solid, accompanied by a decrease in the unemployment rate.

The board expressed optimism that public investment, easing price pressures, and robust employment conditions will continue to support domestic demand and economic activity.

“With inflation on a target-consistent path, the current macroeconomic outlook supports a calibrated shift to a less restrictive monetary policy stance,” the board added, emphasizing the need for caution amid lingering upside risks to prices.

The Monetary Board assured that it would maintain a measured approach to monetary policy, balancing the goal of price stability with the need to sustain economic growth and employment.

The policy adjustment comes as the central bank aims to strike a balance between curbing inflation and fostering economic expansion, particularly in light of global uncertainties and domestic challenges.