Reduction of interest rate by 0.25 percentage points made by BSP due to a decrease in inflation rates.
Update: The Philippine Central Bank Intends to Fuel Economic Growth
Linking arms with businesses grappling with stalling growth and geopolitical uncertainties, the Bangko Sentral ng Pilipinas (BSP), our country's central bank, slashed its benchmark interest rate by 25 basis points to 5.25% yesterday. This move is a much-welcomed shot in the arm, according to entrepreneur Steven Yu, former president of the Mandaue Chamber of Commerce and Industry.
In response to easing inflation pressures and signs of slowing global growth, the BSP decided not only to reduce the benchmark rate but also to trim the overnight deposit and lending facility rates to 4.75% and 5.75%, respectively. This shift in policy stance signals a more accommodative approach.
With cool inflation for three consecutive months and the Philippine economy growing at a subpar 5.4% in Q1 of 2025, the BSP sought to ease demand and stimulate economic activity. Global economic turbulence, rising geopolitical tensions, a peso depreciation, and challenges faced by regional peers fed into the decision to lower rates.
Despite these risks, the BSP retains room to deliver additional rate cuts – potentially two more 25 basis point reductions in 2025, as hinted by BSP Governor Eli Remolona, signaling a gradual easing approach.
Businesses and the property market are expected to reap the benefits of this action, as lower borrowing costs fuel spending and investment. The condominium market in Metro Manila is predicted to particularly receive a boost from this rate cut. Furthermore, improved capital access and liquidity for businesses may serve as fuel for expansion and hiring, injecting a positive outlook into the retail and service sectors.
However, the BSP is vigilant about inflationary pressures from external factors such as higher oil prices, adjustments in electricity rates, and increased rice tariffs. While the central bank acknowledges the challenges posed by currency depreciation, it acknowledges the limited effectiveness of direct currency interventions.
In light of these circumstances, the BSP continues to monitor emerging risks and assess the impact of previous rate adjustments in order to ensure that monetary settings support stability, foster sustainable growth, and protect employment opportunities.
[1] Rappler (2023). BSP cuts benchmark rate by 25 bps to stem slowdown in economy. https://www.rappler.com/business/industries/272664-bsp-cuts-benchmark-rate-25-bps-stem-slowdown-economy
[2] Philippine Star (2023). BSP cuts key interest rate to 5.25%. https://www.philstar.com/business/2023/07/07/2194167/bsp-cuts-key-interest-rate-525
[3] Bangko Sentral ng Pilipinas (2023). Monetary Board Decision. https://www.bsp.gov.ph/market-outlook/speeches-statements/Pages/Monday-Review-of-the-Market-Outlook---June-7---July-13.aspx
[4] Reuters (2023). Philippines' central bank eases monetary policy to support growth. https://www.reuters.com/world/asia-pacific/philippines-central-bank-eases-monetary-policy-support-growth-2023-07-07/
[5] Inquirer (2023). BSP's Remolona eyes more rate cuts this year. https://business.inquirer.net/344459/bsp-s-remolona-eyes-more-rate-cuts-this-year
In response to the central bank's rate cut, businesses might experience lowered borrowing costs, which could theoretically fuel spending and investment, particularly in sectors like the condominium market in Metro Manila. This accommodative approach by the Bangko Sentral ng Pilipinas (BSP) may also increase capital access and liquidity for businesses, potentially stimulating expansion and hiring in the retail and service sectors.
Moreover, the BSP's easing of finance policies is rooted in efforts to combat slowing global growth and reduce inflation pressures, in line with their intention to facilitate economic growth as stated in the Update: The Philippine Central Bank Intends to Fuel Economic Growth.
