By Luisa Maria Jacinta C. Jocson, Reporter

THE BANGKO SENTRAL ng Pilipinas (BSP) lowered its key rate for a third straight meeting on Thursday but signaled the possibility of fewer cuts in 2025.

The Monetary Board on Wednesday reduced the target reverse repurchase rate by 25 basis points (bps), bringing the key rate to 5.75% from 6%.

This was also in line with the expectations of 13 out of 16 analysts surveyed in a BusinessWorld poll last week.

Rates on the overnight deposit and lending facilities were also lowered to 5.25% and 6.25%, respectively.

The central bank has now slashed rates by a total of 75 bps this year since it began its easing cycle in August.

“Looking ahead, the Monetary Board will maintain a measured approach to monetary policy easing to ensure price stability conducive to sustainable economic growth and employment,” BSP Governor Eli M. Remolona, Jr. said.

He said that inflation is projected to stay within the 2-4% target range over the policy horizon.

“On balance, the within-target inflation outlook and well-anchored inflation expectations continue to support the BSP’s shift toward less restrictive monetary policy,” he said.

However, Mr. Remolona said the balance of risks to the inflation outlook continues to remain tilted to the upside, citing “potential upward adjustments in transport fares and electricity rates.”

“The impact of lower import tariffs on rice remains the main downside risk to inflation,” he added.

The central bank raised its baseline inflation forecast to 3.3% for 2025 (from 3.2%) and 3.5% for 2026 (from 3.4%). For this year, it also upwardly revised its forecast to 3.2% from 3.1% previously.

Meanwhile, the risk-adjusted forecasts were also increased to 3.2% this year (from 3.1%) and 3.4% for 2025 (from 3.3%). The risk-adjusted projection for 2026 was kept at 3.7%.

Both baseline and risk-adjusted forecasts remain within the BSP’s 2-4% target band.

“Nonetheless, the monetary authority will continue to closely monitor the emerging upside risks to inflation, notably geopolitical factors,” Mr. Remolona added.

Meanwhile, the BSP also expects domestic demand to “remain firm but subdued.”

“Private domestic spending is expected to be supported by easing inflation and improving labor market conditions. However, downside risks in the external environment could materialize and temper economic activity and market sentiment,” he said.

STILL ‘ON THE TIGHT SIDE’
Asked how much the BSP will cut in 2025, Mr. Remolona said: “In our discussion today, there was a sense that maybe 100 bps over 2025 would be too much, but zero would also be too little.”

He earlier said they could reduce rates in the 100-bp range for 2025, though not necessarily at every meeting or every quarter.

“Even with the 75 bps, from all our estimates, we’re still somewhat on the tight side. That for us is a kind of insurance. The reason we’re cutting in baby steps is because we’re not absolutely sure about inflation,” he said.

“We still worry that inflation might start to rise again. By cutting in baby steps, at this point, we’re still somewhat tight. That’s kind of insurance against a possible increase in inflation.”

If the data are not too “surprising,” the Monetary Board can continue its rate-cutting cycle, Mr. Remolona said.

“If there’s a big surprise then we may change the direction of monetary policy. But if the surprises are small enough then there’s no reason to really change the direction that we’re taking.”

PESO
Meanwhile, Mr. Remolona said the BSP is monitoring the peso and its potential impact on inflation.

“We are concerned about the pass-through. The pass-through tends to become important when there’s enough of a depreciation. So, there’s kind of a threshold and we’re still trying to refine our estimates of that threshold,” he said.

The peso closed at P59 per dollar on Thursday, weakening by one centavo from its P58.99 finish on Wednesday.

So far this year, the local currency has hit an all-time low thrice, including on Nov. 26 and on Nov. 21.

Analysts said that expectations of within-target inflation would allow the BSP to continue easing next year.

“The headline rate is currently only just above the 2% lower bound, and we reckon that it will largely continue to hug this level over the coming 12 months — barring an unexpected supply shock to prices — providing the (Monetary) Board with more room to ease policy,” Pantheon Chief Emerging Asia Economist Miguel Chanco said in a report.

Pantheon expects annual inflation to ease to 2.4% next year from 3.2% this year. It also expects 100 bps worth of reductions next year.

“The central bank may have room to cut interest rates further in the first half of 2025, supported by a favorable inflation outlook,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said.

“Barring any unforeseen supply shocks, inflation can remain within the BSP’s target range next year.”

Mr. Neri also cited expectations of further easing by the US Federal Reserve’s latest dot plot.

“The behavior of USD/PHP may remain manageable if the BSP’s pace of rate cuts aligns reasonably with the Fed’s trajectory,” he added.

The Fed on Wednesday lowered interest rates but signaled fewer rate cuts in 2025.

However, Mr. Neri noted that the BSP is unlikely to cut rates aggressively next year as “global price risks could thwart outsized monetary easing actions.”

The Monetary Board could deliver up to 50 bps worth of cuts for next year, he said.

“While the first half of the year may present opportunities, cutting rates in the latter half could be more challenging, as the Federal Reserve’s outlook could shift in response to President Trump’s potentially inflationary policies.”

“In an adverse scenario, higher tariffs and mass deportations may re-ignite inflation in the US, which could force global central banks to pivot to monetary tightening,” he added.

THE COUNTRY’S balance of payments (BoP) deficit widened in November as the government made more repayments on foreign debt, the Bangko Sentral ng Pilipinas (BSP) said on Thursday.

Data from the central bank showed the BoP position widened to a $2.276-billion deficit in November from the $216-million gap a year ago. It also more than tripled from the $724-million deficit in October.

November also marked the widest deficit in 26 months or since the $2.339-billion shortfall recorded in September 2022.

The BoP measures the country’s transactions with the rest of the world at a given time. A deficit means more funds left the economy than what went in, while a surplus shows that more money entered the Philippines.

“The BoP deficit in November 2024 reflected the National Government’s (NG) net foreign currency withdrawals from its deposits with the BSP to settle its foreign currency debt obligations and pay for its various expenditures, and the BSP’s net foreign exchange operations,” it said.

Earlier data from the BSP showed that the Philippines’ external debt service burden declined by 3.8% to $8.68 billion in the January-to-August period.

Outstanding external debt hit a record $130.182 billion at the end of June. This brought the external debt-to-gross domestic product (GDP) ratio to 28.9% at the end of the second quarter.

In the first 11 months, the BoP stood at a surplus of $2.117 billion, 30% lower than the $3.03-billion surfeit in the same period a year earlier.

“Based on preliminary data, the decline in the cumulative BoP surplus was due to lower net receipts from trade in services and net foreign borrowings by the NG,” the central bank said.

The country’s trade deficit widened by 36.8% year on year to $5.8 billion in October, its widest trade gap in 26 months or since August 2022, data from the local statistics authority showed.

For the first 10 months, the trade deficit widened by 3.6% to $45.22 billion from the $43.64-billion gap a year ago.

“However, this decline was partly muted by the continued net inflows from personal remittances as well as net foreign portfolio and direct investments,” the BSP added.

In the first 10 months, cash remittances grew by 3% to $28.3 billion from $27.49 billion a year prior.

In the same period, BSP-registered foreign investments yielded a net inflow of $2.49 billion, a turnaround from the $715.43-million outflow in 2023.

Meanwhile, foreign direct investment (FDI) net inflows rose by 3.8% to $6.66 billion in the first nine months from $6.42 billion a year ago.

At its end-November position, the BoP reflected a final gross international reserve (GIR) level of $108.5 billion, down by 2.3% from the $111.1 billion as of end-October.

The dollar reserves were enough to cover 4.3 times the country’s short-term external debt based on residual maturity.

It is also equivalent to 7.7 months’ worth of imports of goods and payments of services and primary income.

An ample level of foreign exchange buffers safeguards an economy from market volatility and is an assurance of the country’s capability to pay debts in the event of an economic downturn.

This year, the BSP expects the country’s BoP position to end at a $2.3-billion surplus, equivalent to 0.5% of GDP.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the depreciation of the peso impacted on the net payment of foreign debt maturities.

The peso fell to the record-low P59-per-dollar level twice in November.

“For the coming months, the country’s GIR and BoP could still be supported by the continued growth in the country’s structural inflows from OFW (overseas Filipino worker) remittances, BPO revenues, exports, and relatively fast recovery in foreign tourism revenues,” Mr. Ricafort said.

He said further fundraising activities such as global bond issuances could also boost the BoP position.

Finance Secretary Ralph G. Recto has said they are looking to issue dollar- and euro-denominated bonds in the first half of 2025.

“Thus, still relatively high GIR at $108.5 billion could still strengthen the country’s external position, which is a key pillar for the country’s continued favorable credit ratings,” Mr. Ricafort said. — Luisa Maria Jacinta C. Jocson