Monetary Board cuts key rate to 5% amid global risks

The Bangko Sentral ng Pilipinas (BSP) reduced its benchmark interest rate by 25 basis points to 5 percent on Thursday, signaling a shift to a more accommodative stance amid global economic uncertainties.

The decision, made during the Monetary Board’s policy meeting, lowered the BSP’s Target Reverse Repurchase (RRP) Rate from 5.25 percent to 5 percent. Corresponding adjustments were made to the overnight deposit and lending facilities, now set at 4.5 percent and 5.5 percent, respectively.

“The Monetary Board observed that domestic demand has held firm,” the central bank said in a statement. “However, the impact of US policies on global trade and investment continue to weigh on global economic activity. This could temper the outlook for the Philippine economy.”

Despite the rate cut, the BSP maintained that the inflation outlook remains broadly unchanged. The 2025 inflation forecast remains at 1.7 percent, while projections for 2026 and 2027 were adjusted slightly to 3.3 percent and 3.4 percent, respectively.

“Inflation expectations also remain well-anchored,” the BSP said. However, it warned that possible electricity rate adjustments and higher rice tariffs could increase inflationary pressures in the coming quarters.

The rate reduction—the first since March 2023—comes as inflation in the Philippines cooled in recent months, providing space for the BSP to support economic activity.

Nicholas Antonio Mapa, senior economist at ING Bank Manila, said the move shows the BSP is cautiously aligning with easing trends across other Asian economies.

“This cut is a recognition of easing inflation, but also a hedge against slowing global growth,” Mapa said in an interview. “The BSP is managing a delicate balancing act between price stability and growth support.”

Global headwinds remain a key concern. Recent tightening in U.S. monetary policy has impacted trade and investment flows across emerging markets, including the Philippines.

“The Monetary Board will determine the monetary policy response based on the evolving outlook for inflation and growth,” the BSP noted, emphasizing its data-dependent approach.

Going forward, the central bank reiterated its commitment to safeguard price stability. “The BSP will safeguard price stability by ensuring monetary policy settings are conducive to sustainable economic growth and employment,” the statement read.