BSP chief hints at 50 bps interest rate cut

BANGKO Sentral ng Pilipinas (BSP) Governor Eli Remolona has hinted at a 50 basis point (bp) cut in the monetary policy rate this year and a 200 basis point cut in the banks’ reserve requirement in the middle of the year.

Remolona said the initial talk of a 100 or 75 bps total policy rate cut this year was unlikely due to persisting inflation. He added a 50 bps cut was more possible because they also needed to have a policy insurance against inflation. But he said that the cut would not happen in one monetary board meeting or even in consecutive meetings.

“That sounds about right, 25 [in the] first half, 25 [in the] second half. Not every meeting we’ll see policy rate decline,” Remolona told reporters.

High interest rate helps ease inflation but it also has a tendency to temper growth. The country’s 2024 full year gross domestic product (GDP) expanded by 5.6 percent, missing the government target of 6 to 6.5 percent.

The BSP chief said the Monetary Board was discussing reducing the bank’s reserve requirement ratio by 200 basis points by June or July this year.

“That’s the amount were discussing 200 basis points, from 7 [percent] to 5 [percent] for the big banks,” Remolona said. Big banks currently have a 7 percent reserve requirement, while other banks like thrift banks or digital banks have lower reserve requirement ratio.

Remolona said a 5 percent reserve requirement could help the economy, since banks would have more money to lend to the public or businesses.

“It should raise the deposit rate a little bit if you cut the reserve requirement, while lowering the loan rates,” he said. (ABS-CBN News)

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