(Bloomberg) -- The Philippine central bank lowered its policy rate by a quarter point and signaled it may continue easing early next year, while joining policy makers in Indonesia and Thailand in warning of growing global risks.
The Bangko Sentral ng Pilipinas cut its overnight target reverse repurchase rate to 5.75% on Thursday, as expected by 22 of 24 economists in a Bloomberg survey. One predicted a half-point reduction, while one expected no change.
At a briefing in Manila, Governor Eli Remolona signaled the central bank expects to continue reducing borrowing costs in 2025, possibly in its next meeting, but downplayed previous comments that rates could potentially decline by 100 basis points next year.
“In our discussion today, there was a sense that maybe 100 basis points over 2025 would be too much, but zero would also be too little,” Remolona said. “We have to see what the data says.”
The central bank also lowered the key rate by 25 basis points in its August and October meetings, thanks to inflation that has remained within the central bank’s 2%-to-4% goal for the past four months. Slower economic growth last quarter likewise gave the BSP reason to further lower borrowing costs.
“A sharp drop in inflation over the past year has given the central bank room to continue easing monetary policy and we expect further cuts over the coming months,” Capital Economics said in a note.
The peso closed at the record low of 59 to the dollar after the decision. Stocks fell today in line with declines elsewhere in Asia, where sentiment was depressed because even though the Federal Reserve just ended 2024 with a third-straight interest-rate cut, it signaled it sees fewer reductions in 2025.
Remolona was asked if the Philippines will track the Fed’s likely 50 basis points of cuts next year.
“That’s hard to say, because we look at our own data,” Remolona said. “We look at US data and Fed monetary policy only to the extent that it affects us in terms of inflation and in terms of growth.”
The BSP’s monetary policy statement echoed other emerging market policy makers’ warnings about external risks. Bank Indonesia on Wednesday left rates unchanged, and warned of uncertainty due to “US policy direction” and escalating geopolitical tensions. The Bank of Thailand also held rates unchanged and warned of growing uncertainties.
“The monetary authority will continue to closely monitor the emerging upside risks to inflation, notably geopolitical factors,” the Philippine central bank said.
Tamara Mast Henderson, an economist with Bloomberg Economics, said the Philippines looks set to cut further, but not by the 100 basis points previously flagged.
“The central bank also opened the door for an extended pause if inflation becomes too strong or the peso too weak — either could de-anchor price expectations,” she wrote in a report after the decision.
“The balance of risks to the inflation outlook continues to lean to the upside due largely to potential upward adjustments in transport fares and electricity rates,” BSP said. “The impact of lower import tariffs on rice remains the main downside risk to inflation.”
The Bank of Japan separately held its monetary policy settings unchanged today.
--With assistance from Claire Jiao, Cliff Venzon and Cecilia Yap.
(Rewrites with context on global risks, more comments.)
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