By Luisa Maria Jacinta C. Jocson, Reporter

THE BANGKO SENTRAL ng Pilipinas (BSP) may cut interest rates by 50 basis points (bps) this year, its top official said.

“Seventy-five basis points might be too much, maybe 50 bps. We need a bit of policy insurance,” BSP Governor Eli M. Remolona, Jr. told reporters on the sidelines of the BSP Media Information Session in Baguio City on Saturday.

Mr. Remolona said that this could be delivered in increments of 25 bps each in the first and second half of the year.

“I think that sounds about right, 25 bps (in the) first half, 25 bps (in the) second half. Not every meeting we’ll see a policy rate decline,” he added.

The central bank began its easing cycle in August last year, slashing borrowing costs by a total of 75 bps by end-2024.

The Monetary Board delivered three straight rate cuts, bringing the benchmark to 5.75%.

Mr. Remolona said “there is no need” for a 100 bps worth of reductions this year as the country is far from a “hard landing” scenario.

“Central banks around the world learned to do things gradually except when there is an impending hard landing. Hard landing usually means a cut of more than 25 bps. We don’t see a hard landing in the near future,” he said.

On Friday, Mr. Remolona said a rate cut is still on the table at the Monetary Board’s first policy review meeting this year on Feb. 13.

The BSP chief said a negative output gap could prompt further monetary easing.

“Right now, we have a kind of a negative output gap. We’re growing at a little bit below capacity and whether that (growth) number widens that gap, our capacity and how much we’re really growing.”

“If the gap is widening, if it becomes more negative, then it would call for more easing,” he added.

The Philippine’s gross domestic product (GDP) grew by 5.6% in 2024, falling short of the government’s 6-6.5% target.

In the fourth quarter, GDP growth expanded by a weaker-than-expected 5.2%, the slowest print since the 4.3% logged in the second quarter of 2023.

Meanwhile, Mr. Remolona said they are also monitoring the US Federal Reserve’s moves but do not see the need to necessarily fall in step with the US central bank.

“Of course, it affects what we will do because it affects what happens to the economy, what happens to inflation rates. In that respect, it affects what we do but we don’t copy them. We don’t just follow them.”

The Fed, in its January meeting, kept benchmark interest rates unchanged as widely expected, after easing a full basis point in 2024. This marks the first pause since the start of its easing cycle in September, Reuters reported.

RRR CUT
Meanwhile, the BSP chief said the central bank is eyeing another cut in banks’ reserve requirement ratio (RRR) this year.

The Monetary Board is eyeing to reduce reserve requirements by 200 bps to 5% this year, he said.

“That’s the amount that we’re discussing, 200 bps. From 7% to 5% for the big banks,” Mr. Remolona said.

This may be delivered sometime in the middle of the year, he added, likely in June or July.

The central bank reduced the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5%, which took effect last October.

It also cut the RRR for digital banks by 200 bps to 4% and for thrift lenders by 100 bps to 1%. Rural and cooperative banks’ RRR was also slashed by 100 bps to 0%.

“In a way, the policy rate cut is a substitute for cutting the reserve requirements. They have similar effects on the economy… We want to bring it lower but the timing matters, because we are also cutting the policy rate,” Mr. Remolona said.

“The nice thing about the reserve requirement is it affects both the deposit rate and the lending rate. So, it should raise the deposit rate a little bit if you cut the reserve requirement while lowering the loan rates.”

The RRR is the portion of reserves that banks must hold onto to ensure they can meet liabilities in case of sudden withdrawals. When a bank is required to hold a lower reserve ratio, it has more funds to lend to borrowers.

From a high of 20% in 2018, the central bank has since brought down reserve requirements to single-digit levels. 

By Luisa Maria Jacinta C. Jocson, Reporter

HEADLINE INFLATION may have eased in January amid lower electricity rates and food prices, analysts said.

A BusinessWorld poll of 16 analysts yielded a median estimate of 2.8% for the consumer price index (CPI) in January.

This is within the 2.5%-3.3% forecast of the Bangko Sentral ng Pilipinas (BSP) for the month and the 2-4% target range.

If realized, January inflation would have eased from 2.9% in December and matched the 2.8% print a year ago.

The Philippine Statistics Authority (PSA) is set to release January inflation data on Feb. 5 (Wednesday).

“We expect headline inflation to ease, driven by lower food price inflation, while a decline in electricity generation rates partly offset a pickup in retail fuel prices,” Nomura Global Markets Research analyst Euben Paracuelles said.

Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said food inflation has been steady “largely due to reports that rice prices have declined versus prior months with favorable supply prospects following the end of El Niño.”

Rice inflation sharply slowed to 0.8% in December from 5.1% in November and 19.6% a year prior.

The PSA earlier noted the possibility of rice inflation turning negative in January.

“We expect headline inflation to decelerate on the back of retail rice prices falling to P37 per kilogram and electricity prices easing,” HSBC economist for ASEAN Aris D. Dacanay said.

Manila Electric Co. lowered the overall rate by P0.2189 per kilowatt-hour (kWh) to P11.7428 per kWh in January from P11.9617 per kWh in December.

OIL PRICE HIKES
On the other hand, analysts flagged risks that could stoke inflation, such as fuel costs.

“While electricity rates eased on the back of lower generation charges, domestic fuel prices were up over three straight weeks in January due to higher global oil prices,” Sarah Tan, an economist from Moody’s Analytics, said.

In January, pump price adjustments stood at a net increase of P2.65 a liter for gasoline, P4.80 a liter for diesel and P3.80 a liter for kerosene.

Mr. Dacanay said inflation could have eased further if not for other non-core components.

“For instance, retail fuel prices continue to climb due to a strong US dollar, while pork prices jumped as the increase in African Swine Flu cases took a toll on supply,” he said.

“Higher prices were observed for fuel as well as for key food items such as vegetables, meat, fish, and fruits,” Chinabank said.

Food inflation could have also reflected the impact of storm damage late last year, Ms. Tan said.

“Flood damage knocked food production in the final months of 2024, stoking inflation. These upward price pressures are expected to linger into the opening month of the new year,” she added.

Several storms hit the country in the fourth quarter, leading to billions of pesos worth of agricultural damage. The combined effects of tropical cyclones Kristine and Leon resulted in P9.81 billion in agriculture losses.

“Further, water rates were also upwardly revised as of Jan. 1, which will add to households’ and businesses’ utility bills through the year,” Ms. Tan said.

“The higher water rates are said to contribute to the expansion of water service and infrastructure projects,” she added.

The Metropolitan Waterworks and Sewerage System Regulatory Office had approved a P5.95-per-cubic-meter increase for Manila Water Co., Inc. and P7.32 per cubic meter for Maynilad Water Services, Inc., starting January.

“The annual adjustment in water rates in Metro Manila, along with the increase in sin taxes also added to upward price pressures,” Chinabank Research said.

INFLATION OUTLOOK
In the coming months, inflation is seen to continue settling within the 2-4% target range.

“Looking ahead, inflation will likely remain within target, barring new shocks,” Chinabank Research said.

The BSP projects inflation to average 3.3% this year. Even accounting for risks, it sees inflation potentially hitting 3.4%.

“On a monthly basis, we may see headline inflation bottom out at 2.4% year on year in February and a slight decline from December… as heavyweight CPI housing rental, electricity, water, and gas ease to less than 2%,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said.

“Moving forward, we expect the government’s ongoing efforts to manage rice supply to bring overall inflation down in the next few months,” Mr. Dacanay said.

The government implemented a maximum suggested retail price on imported rice in Metro Manila in late January to address elevated prices.

The within-target inflation outlook will allow the BSP to continue its rate-cutting cycle, analysts said.

‘This will support further monetary policy easing in the Philippines, reducing the pressure on the budgets of households and businesses,” Ms. Tan said.

“This favorable inflation outlook, along with the weaker-than-expected GDP growth in the fourth quarter, supports the case for another interest rate cut by the BSP in its upcoming policy meeting this month,” Chinabank Research said.

Security Bank Corp. Vice-President and Research Division Head Angelo B. Taningco said he expects the BSP to deliver a 25-basis-point (bp) rate cut at its first meeting for the year as inflation is likely within the 2-4% target range in January and fourth-quarter growth was weaker than expected.

Sun Life Investment Management and Trust Corp. economist Patrick M. Ella said the latest growth outturn will be a “larger consideration” for the BSP.

The Philippine economy grew by a slower-than-expected 5.2% in the fourth quarter, bringing full-year 2024 growth to 5.6%. This falls short of the government’s 6-6.5% target.

“We think the BSP will have to cut 25 bps for the first Monetary Board meeting this year. The weakness in consumption and private investments points to the need for support from the monetary policy side at the moment,” Mr. Ella said.

“This may lead to a weaker peso in the near term but the pressing need to support growth is immediate,” he added.

However, analysts also said that the BSP’s easing cycle may be derailed as risks persist.

Ms. Tan said the pace of further easing may be more moderate than last year.

“We’re looking at two quarter-point rate cuts by December, with the first coming through in mid-2025 at the earliest,” she said.

“The BSP will be prudent in monitoring global developments that could reinflate inflation and weaken the strength of the peso,” she added.

Mr. Neri likewise expects the central bank to deliver just 50 bps worth of cuts this year.

“That said, we continue to see risks that could limit the BSP’s rate cuts to just 50 bps this year,” he said.

“If BSP becomes too aggressive with easing, the peso could be subject to sizable exchange market pressure, which, in turn, could fuel inflation expectations.”

The peso has been under pressure in the past few months, sinking to the record-low P59-per-dollar level thrice in 2024.

Ms. Tan expects the Monetary Board to keep rates steady at its Feb. 13 meeting as it will likely remain cautious.

BSP Governor Eli M. Remolona, Jr. has signaled the possibility of up to 50 bps worth of rate cuts this year.

MORE SHORT-TERM foreign investments entered the Philippines in 2024, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Foreign portfolio investments registered with the central bank through authorized agent banks posted a net inflow balance of $2.1 billion last year, a turnaround from the $248.84-million outflow in 2023.

These investments are called “hot money” because of the ease with which they can enter or leave a jurisdiction, as opposed to foreign direct investment, which is considered less fickle.

Central bank data showed gross inflows jumped by 39.2% to $17.93 billion in 2024 from $12.89 billion a year ago.

Over half or 54.2% of these investments went to peso-denominated government securities, while the rest were invested in Philippine Stock Exchange (PSE)-listed shares of banks; holding firms; property; transportation services and food, beverage and tobacco.

In 2024, the top investor countries were the United Kingdom, Singapore, the United States, Luxembourg and Hong Kong, accounting for the bulk or 86.3% of investments.

Meanwhile, gross outflows totaled $15.83 billion last year, higher by 20.5% from $13.14 billion in 2023.

“Majority (or 96%) of these outflows represented capital repatriation while the remaining 4% pertained to remittance of earnings. The US continued to be the main destination of outflows with 49.8% of total,” the BSP said.

In December alone, the hot money balance stood at a net outflow of $487.37 million in 2024, more than double (137.5%) the $205.18-million outflow in the previous year.

Gross inflows slipped by 1% to $1.055 billion during the month from $1.065 billion a year ago. It also fell by 43.4% from the $1.86-billion inflows recorded in November.

Broken down, 51.7% of these went to peso government securities while the remaining 48.3% were in PSE-listed securities.

In December, inflows came mostly from the United Kingdom, the United States, Singapore, Germany and Ireland, accounting for 76.3% of investment inflows.

On the other hand, gross outflows rose by 21.4% to $1.54 billion from $1.27 billion. Month on month, it declined by 12.6% from $1.76 billion.

“The US remains to be the top destination of outflows, receiving $718.88 million (or 46.6%) of total outward remittances,” it said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the hot money net inflow was due to the start of monetary easing by the US Federal Reserve and BSP.

The US central bank began its easing cycle in September last year, slashing interest rates by a total of 100 basis points (bps) in 2024.

The BSP also kickstarted its rate-cutting cycle in August last year. It reduced borrowing costs by a total of 75 bps by end-2024, bringing the key rate to 5.75%.

This helped “reduce funding costs, spur more investments, employment, trade, and other business activities,” he added.

The country’s recent credit rating upgrades and improvements also supported investor sentiment, Mr. Ricafort said. 

In August, Japan-based Rating and Investment Information, Inc. upgraded the Philippines’ investment grade rating to “A-.”  — Luisa Maria Jacinta C. Jocson