MANILA: The Philippine central bank cut its key interest rate as expected on Thursday (Dec 19) but further easing next year might come in "baby steps" as inflation remains a concern.
The Bangko Sentral ng Pilipinas (BSP) eased its target reverse repurchase rate by 25 basis points (bps) to 5.75%, reducing the overnight borrowing rate for a third straight meeting.
"The within-target inflation outlook and well-anchored inflation expectations continue to support the BSP's shift toward less restrictive monetary policy," central bank Governor Eli Remolona told a news conference.
All 24 economists polled by Reuters had expected the cut. The easing brought the target rate to its lowest level since February 2023, when the rate was raised to 6%.
The rate cut in the Philippines comes after similar action by the US Federal Reserve on Wednesday. The Fed also pointed to a more cautious approach to cutting rates further.
Despite inflation seen settling within target through 2026, price pressures remain a concern, Remolona said. Thus, easing by as much as 100 bps cumulatively next year "may be a bit much".
"We still worry that inflation might start to rise again. And we're cutting in baby steps," Remolona said.
The Philippine peso closed slightly higher at 59 per dollar.
The BSP raised its 2025 risk-adjusted inflation forecast to 3.4% from 3.3% but maintained the 2026 outlook at 3.7%. It also increased the baseline inflation forecast for 2024 to 3.2% from 3.1%, the 2025 outlook to 3.3% from 3.2%, and the 2026 projection to 3.5% from 3.4%.
"The Monetary Board will maintain a measured approach to monetary policy easing to ensure price stability conducive to sustainable economic growth and employment," Remolona said.
Inflation has averaged 3.2% as of the end of November, within the central bank's 2% to 4% target range.
Emilio Neri, lead economist of the Bank of the Philippine Islands in Manila, said the BSP may cut by as much as 50 basis points for next year.
"We continue to subscribe to the view that the BSP will avoid cutting rates aggressively in 2025 as global price risks could thwart outsized monetary easing actions," Neri said in a statement. - Reuters
