(Bloomberg) -- The Philippines cut interest rates for the first time in almost four years and signaled more to come, as policymakers look to preserve the momentum of economic growth.
The Bangko Sentral ng Pilipinas reduced the target rate by 25 basis points to 6.25% on Thursday, as expected by 13 of 23 economists in a Bloomberg survey. The rest had seen no change.
The central bank said risks to inflation are tilted to the downside, supporting the case for the easing to continue. The BSP had delivered 450 basis points worth of tightening to tame consumer prices post-pandemic.
“It’s one move,” Governor Eli Remolona told reporters after the decision. “We may need further moves in the same direction.”
Remolona, who had previously telegraphed the room for 50 basis points of cuts this year, said the central bank may lower the rate by another quarter point in October or December.
Thursday’s adjustment makes the BSP among Southeast Asia’s first to switch to easing amid waning pressure on the currency and consumer prices. Lower borrowing costs are expected to aid consumption in an economy that’s already expanding at one of the fastest clips in Asia this year.
The pace of gross domestic product growth notwithstanding, domestic demand had begun to show signs of stress amid restrictive rates. Private consumption, the bedrock of demand, grew at the slowest pace post-pandemic in the January-March period and fell on-quarter in the recent review.
“That’s the reason for the easing,” Remolona said. “We’re somewhat more confident in the inflation numbers coming down than in the GDP numbers going up.”
That said, the BSP lifted its risk-adjusted inflation projection for 2024 to 3.3% from 3.1%.
Although inflation quickened in July to its fastest pace in nine months, the central bank expects price gains to cool for the rest of the year, largely due to the impact of lower import tariff on rice.
What Bloomberg Economics Says...
We expect a move in October, as CPI readings for August and September are likely to be back within the target range and indicative of a material deceleration that would keep inflation expectations anchored.
— Tamara Mast Henderson, economist
For the full note, click here
The peso strengthening by more than 2% against the dollar this month also bodes well for stable prices. The currency fell as much as 0.3% versus the dollar following the decision to cut rates.
--With assistance from Claire Jiao, Cliff Venzon, Cecilia Yap, Michael J. Munoz and Marcus Wong.
(Updates with more details throughout.)
©2024 Bloomberg L.P.
