Philippine central bank cuts interest rates further

Lower rates kick in on October 17, making it more affordable to purchase a home, or a car

Manila: The country’s central bank has cut interest rates by 25 basis to 5.50 per cent for overnight deposits and 25 basis points to 6.50 per cent for lending facilities, in a move that reflects confidence over its ability to keep inflation in check.

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) also announced a cut of 25 basis points on the Target Reverse Repurchase (RRP) Rate to 6.0 per cent.

The move takes effect on Thursday, October 17, 2024.

Lower cost of borrowing

It's the second rate cut made by the board so far this year – which means that the cost of borrowing money goes even lower – and marks a positive signal for businesses and ordinary borrowers in the Asean nation.

It could perk up loans as well the shares markets.

In a statement, the Monetary Board has announced that the decision is based on its assessment that price pressures – as reflected by the rate of inflation – remain “manageable”.

The risk-adjusted inflation forecast for 2024 eased to 3.1 per cent from 3.3 per ent in the previous meeting (August 15, 2024).

Implications

Given the board’s latest cut, lower interest rates can now make it more affordable to purchase a home or a car.

For businesses, it can also make it easier for them to borrow money to invest in their growth. This can lead to increased economic activity and job creation.

Lower interest rates can also help to reduce the burden of debt on households and businesses. This can free up more money for people to spend, which can further boost the economy.

Keeping an eye on inflation

The board keeps a constant eye on inflation – the general increase in prices and fall in the purchasing value of money – and uses it as guide in making policy rate decisions.

Going forward, due mainly to potential adjustments in electricity rates and higher minimum wages in areas outside Metro Manila, the board sees that the balance of risks has shifted toward the upside for its 2025-2026 outlook.

However, it also recognised certain downside factors that continue to be linked to the impact of lower import tariffs on rice.

Monetary Board’s function

The Monetary Board exercises the powers and functions of the BSP, including the conduct of monetary policy and supervision of the financial system.

The board is chaired by Eli M. Remolona, Jr., the BSP Governor, with five full-time members from the private sector and one member from the Cabinet.

Overall, the Monetary Board’s decision is a sign of confidence on its part that the economy is doing well and that the central bank is confident that it can afford to loosen monetary policy.

Remolona, Jr. has been recognised as one of the top-performing central bank governors globally, receiving an “A-” rating in Global Finance magazine's 2024 Central Banker Report Cards.