(Bloomberg) -- The Philippines will likely use quarter-point moves to slash its benchmark interest rate by around 175 basis points through 2025, according to Governor Eli Remolona, as a shock slowing of inflation backed his case for further easing.
A 25 basis-point cut is on the cards for the Oct. 16 policy meeting, followed by a reduction of the same size in December, Remolona said in an interview Thursday. The Bangko Sentral ng Pilipinas is unlikely to resort to half-point cuts unless the nation’s economic growth “turns out to be worse than we thought,” he added.
“If the data are as we expect, then you would have the normal easing, which is small steps at a time, baby steps,” Remolona said.
He made the comments a day before government data showed September inflation easing to a four-year low at 1.9%. The latest print was below the BSP’s projection and the median estimate in a Bloomberg survey of analysts.
The slowdown was largely due to smaller gains in food prices, with rice inflation easing to 5.7%, the lowest since July last year, helped by lower import tariffs, the statistics agency said.
Remolona said he sees the key rate declining from 6.25% now to around 4.5% by the end of 2025, a level that will support the economy. Inflation is projected to firmly settle within the BSP’s 2%-4% target this year, he added.
Unlike the Federal Reserve, which delivered a 50-basis point cut when it began easing last month, Remolona kicked off the Philippines’ easing cycle in August with just a quarter-point cut. He sees the Fed cutting by a cumulative 75 basis points for the rest of the year, but signaled that the BSP doesn’t have to match these moves.
The BSP is unwinding its most aggressive monetary tightening in two decades, which had brought the policy rate to a 17-year high. The focus now is on the size and pace of future rate cuts, especially after the Fed’s outsize move.
The central bank has said its shift to a less restrictive monetary policy stance will be “calibrated” and “measured.” Finance Secretary Ralph Recto, a member of the rate-setting board, is however pushing for a more aggressive half-point move.
The possibility of below-target economic growth next year and ebbing consumption also provide the BSP impetus to sustain its easing cycle. The central bank recently slashed the reserve requirement ratio to 7% for big lenders, pulling another lever to support the economy.
The next cut in the RRR will likely happen next year, Remolona said. “We’re in no rush to reduce it even more,” he said, adding that a move sooner could stimulate the economy “too much.”
--With assistance from Ditas Lopez.
(Updates with latest inflation data in fourth and fifth paragraphs.)
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