THE Philippine central bank kept the key interest rate unchanged on Thursday (Feb 13), pausing a nascent easing cycle on rising global uncertainties, even as the governor said that borrowing costs would continue to go down.
Bangko Sentral ng Pilipinas (BSP) plans to cut the lenders’ reserve requirement ratio (RRR) in the first half by 200 basis points to 5 per cent from the current 7 per cent, governor Eli Remolona said on Thursday, after announcing that the benchmark rate was being held steady at 5.75 per cent.
“The timing is still under discussion, but I think it will be fairly soon, maybe sooner than the middle of the year,” he said of the plan to reduce the amount that lenders must set aside in reserve.
BSP is still in an easing cycle and policymakers are not planning to tighten settings, he said. Remolona on Thursday stuck to his previous guidance for a total reduction of 50 basis points in the key rate this year, and said that a cut was still on the table for the Apr 3 meeting.
Global uncertainties have prompted BSP to pause and take stock to “recalibrate our models”, he told the briefing.
“We are facing an unusual phenomenon in terms of the uncertainty of policies that will be put in place, and our models do not capture those things very well, so we have to redo our models.”
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His comments underscore the challenges confronting policymakers all over as US President Donald Trump roils markets with his tariff policy.
The Philippine central bank’s decision comes as US Federal Reserve chair Jerome Powell said that the latest US inflation data showed that policymakers still have more work to do. The Fed voted unanimously last month to keep the policy rate unchanged.
Remolona, who had clearly telegraphed BSP’s moves last year, managed to confound markets this time. The central bank’s decision to hold was predicted by only one of 29 economists in a Bloomberg News survey.
The rest expected BSP to deliver another 25-basis-point cut for a fourth consecutive meeting, after 2024 gross domestic product growth was below target for a second straight year.
While inflation steadied at 2.9 per cent in January – well within the central bank’s 2 to 4 per cent target range – the BSP said earlier this month that risks continue to lean to the upside on potential power and transport price hikes.
The governor had repeatedly said that while BSP considers the Fed’s action, domestic inflation and economic growth are the primary factors that influence the monetary board’s decision. BLOOMBERG
