The Philippine central bank is reducing its involvement in the currency market and is poised to resume interest rate cuts in April, according to Governor Eli Remolona. In an interview on Tuesday, Remolona confirmed that the Bangko Sentral ng Pilipinas (BSP) is on an “easing cycle,” and there is a strong possibility of a 25 basis point cut next month.
Remolona further indicated that cumulative rate cuts for 2025 could total 75 basis points, depending on incoming economic data. He also highlighted that while inflation risks for 2025 and 2026 are tilted toward the upside, the central bank remains committed to managing inflation within its target range of 2%-4%. The Philippines last lowered borrowing costs in December, but paused further easing in February.
Inflation has been moderating in recent months, with the rate slowing in February and remaining within the central bank’s target for seven consecutive months. The Philippine peso has strengthened by nearly 1% against the US dollar this month, making it the second-best performing currency in Asia after India’s rupee. This improvement has alleviated pressure on the BSP to intervene in the foreign exchange market, thus providing more space for potential rate cuts.
“We’ve been less active in the last few months,” Remolona commented on the BSP’s intervention in the foreign exchange market.
Additionally, the BSP will implement a 200-basis-point cut to the reserve requirement ratio (RRR) for large banks on Friday, reducing the RRR to 5%. This move is expected to inject billions of dollars into the financial system, boosting economic activity. The central bank had announced the decision last month, emphasizing that the RRR reduction was aimed at addressing distortions in the financial system.
Remolona stated that while the BSP aims to eventually reduce the RRR to zero, the central bank must carefully manage the liquidity effects of such changes. Despite keeping the benchmark interest rate unchanged in February due to global uncertainties, the RRR cut signals the BSP’s ongoing efforts to support economic growth.
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