THE Bangko Sentral ng Pilipinas (BSP) may continue reducing interest rates as the new ‘goldilocks rate’ for key policy rates is now expected to be below 5 percent.
On Thursday, the Monetary Board decided to reduce policy rates by 25 basis points to 4.75 percent. This is the lowest policy rate recorded by the country since September 2022 when rates were raised by 50 basis points to 4.25 percent.
The goldilocks rate or ‘sweet spot’ for policy rates, Remolona said, may be closer to 4 percent now compared to the initial assessment of 5 percent. Given this, the Monetary Board is keen on continuing its easing cycle.
‘We now think the gap is wider than we thought. In light of new research, we have also shifted our estimate of the goldilocks rate. We believe it could be lower than before, giving us more room to reduce the policy rate,’ Remolona said.
‘Early on, we see more scope for more accommodative monetary policy. The favorable inflation outlook and moderating domestic demand provide room for monetary policy to further support economic growth and employment,’ he added.
Based on the latest inflation estimates, the BSP has maintained its inflation outlook of 1.7 percent in 2025, but adjusted downward its forecasts for inflation next year and next year.
Initially, BSP Deputy Governor Zeno Ronald Abenoja said inflation was estimated to average 3.3 percent next year but given the latest projects, this is now down to 3.1 percent.
For 2027, Abenoja said inflation was initially set at 3.4 percent but after today’s policy meeting, the BSP has reduced this to only 2.8 percent.
‘We now find [the] inflation outlook to be quite benign. Inflation expectations remain well upward, but adjustments to electricity rates and possible increases in tariffs on rice imports pose some risks. But these risks look limited,’ Remolona said.
In terms of growth rates, Abenoja said, growth will likely be at the low end of the government’s targets at 5.5 percent this year and 6 percent next year and in 2027.
Remolona said this growth outlook was affected by governance concerns surrounding public infrastructure spending, which has weighed on business sentiment.
He noted that the stock market has declined and that there are now fewer companies with expansion plans. He also noted that there were days when both the stock market declined and the peso depreciated at the same time, which signified that investors were leaving.
Nonetheless, Remolona said, the BSP is not going to intervene in the foreign exchange market ‘against those [out]flows.’ ‘We would defend the peso, when we think that the depreciation is so sharp and so large that we think it could be highly inflationary,’ he also said.
In a statement, BSP said potential electricity rate adjustments and possible increases in tariffs on rice imports could add some upward pressures. Nonetheless, the risks to the inflation outlook are limited as price pressures are expected to ease.
The Monetary Board likewise noted that the outlook for domestic economic growth has weakened. This outlook reflected in part the impact on business confidence of governance concerns about public infrastructure spending. Indications of moderating demand also reflect lingering uncertainty from the external environment.
On balance, the Monetary Board sees scope for a more accommodative monetary policy stance. The favorable inflation outlook and moderating domestic demand provide room to further support economic activity.
As the impact of earlier policy action works through the economy, the BSP will remain attentive to emerging risks while maintaining price stability conducive to sustainable growth and employment.