BSP's rate cut justified by large monetary space
Some segments of business media were quite skeptical about the Bangko Sentral ng Pilipinas’ (BSP) decision last Thursday. The Philippines’ monetary authorities opted to sustain for the second time a 25-basis-point reduction in its policy rate and issued virtual forward guidance that it is prepared for another rate cut towards the second half of 2025. What the media raised was whether it was premature for the BSP to have once again eased monetary policy. The oil factor in the inflation equation is just too real to ignore. The war in progress between Iran and Israel has already upset the global markets, whether the petroleum, labor or financial markets, because at stake are the oil production facilities of Iran. The Philippines will not be spared, as in the past when steep rises in petroleum prices frustrated the BSP’s forecasts, particularly in 2018. But the BSP was well justified in its recent decision to reduce its policy rate. It has large monetary space, with actual and projected inflation rates well within the 2-4% target. The relatively weak economic growth during the first quarter 2025 at 5.4% could be supported by dovish monetary policy. With its nimble performance in terms of assessment and appropriate action, the BSP is expected to deliver another rate cut in the second half of 2025, actual data permitting.
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