(Bloomberg) -- The Philippine central bank signaled it is getting close to easing monetary policy, after holding the benchmark interest rate steady Thursday to support the peso.

The Bangko Sentral ng Pilipinas left the target rate at 6.50% for a sixth straight meeting on Thursday, as expected by all 22 economists in a Bloomberg News survey.

The central bank expects inflation to cool this year and the next, with economic growth prospects remaining in line with medium-term trends — an outturn that Governor Eli Remolona said will keep the central bank on track for lowering rates in the third quarter.

“The balance of risks to the inflation outlook has shifted to the downside for 2024 and 2025 due largely to the impact of lower import tariffs on rice,” Remolona said.

That makes an August rate cut somewhat more likely than before, with the quantum of reduction expected to be 25 basis points at a time, he said. A total 50 basis points of cuts this year was on the table, the governor added.

“If we follow the course where we think we are, that could mean 25 basis points in the third quarter, and then 25 in the fourth quarter,” the governor said.

A cut in August would mean the BSP won’t wait for the US Federal Reserve to pave its interest-rate path. Remolona’s latest comments on easing follow signs of strains in domestic demand from elevated borrowing costs, which were raised by 450 basis points in BSP’s most-aggressive tightening campaign in two decades.

Still, Thursday’s decision to hold the key rate will help the peso, which has been hovering near a record low 59 per dollar for a month, as also check second-round effects on inflation. Price growth quickened for a fourth straight month in May though it has stayed within the BSP’s 2%-4% target this year.

What Bloomberg Economics Says...

The BSP looks ready to cut rates at its next meeting on Aug. 15. Three signals are lining up in that direction — its latest inflation outlook, risk bias and explicit messaging. The only potential snag that could delay a cut is the peso.

—- Tamara Mast Henderson, economist

For the full note, click here

“We don’t want it to depreciate too sharply, Remolona said, referring to the peso. “We occasionally intervene.” 

The local currency held on to gains after the decision, up 0.2% against the greenback as of 3:46 p.m. local time.

Remolona’s views also confirm policymakers’ assessment that the worst of inflation is over. The central bank lowered its risk-adjusted consumer price inflation estimate to 3.1% for this year and next, from 3.8% and 3.7% seen previously.

--With assistance from Shinjini Datta, Andreo Calonzo, Ditas Lopez, Cecilia Yap, Clarissa Batino and Claire Jiao.

(Updates with central bank comments on guidance for easing.)

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