The Philippine central bank has once again lowered its benchmark rates by 25 basis points, marking the second consecutive reduction, as inflation remains subdued. The Monetary Board of the Bangko Sentral ng Pilipinas has adjusted the target reverse repurchase rate, bringing it down from 6.25% to 6.00%.
In alignment with these changes, the rates for the overnight deposit and lending facilities have been revised to 5.50% and 6.50%, respectively, effective from October 17th. This move follows a previous quarter-point rate reduction in August, which was the first since November 2020.
Consumer price inflation in September fell to 1.9%, the lowest in four years and significantly below the BSP's projected range of 2.0-2.8% for the month. Consequently, the average inflation rate for the year stands at 3.4%, aligning with the government's target range of 2.0% to 4.0% for 2024.
Core inflation also declined, reaching 2.4% from 2.6%. In response to these trends, the bank has revised its risk-adjusted inflation forecast for 2024 downward to 3.1% from 3.3%, while projections for 2025 and 2026 have been revised upward to 3.3% and 3.7%, respectively.
The bank has identified potential risks to the inflation outlook for 2025 and 2026, primarily due to possible hikes in electricity rates and increased minimum wages. Nonetheless, the board anticipates robust domestic growth, driven by improved household income and consumption, coupled with investment and government spending, fostering an environment of monetary easing.
"The within-target inflation outlook and stable inflation expectations support the BSP's move towards a less restrictive monetary policy," stated the bank. "Moving forward, the Monetary Board plans to adopt a cautious approach to its easing cycle, ensuring price stability conducive to sustainable economic growth and employment."
Looking ahead, the BSP is expected to reduce the policy rate by an additional 25 basis points at the December meeting, with further easing anticipated in 2025, according to Capital Economics' economist, Harry Chambers.
