In surprise move, BSP keeps key rate steady

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) on Thursday defied market expectations after keeping the policy rate steady, citing the need to defend the economy and the inflation outlook against “unusual” uncertainties coming from global trade developments.

At its first policy meeting for this year, the powerful Monetary Board decided to keep the benchmark rate that banks typically use as a guide when pricing loans at 5.75 percent.

The decision came as a surprise to the market, including the majority of economists in an Inquirer poll that had projected another quarter-point reduction. It also punctuated three straight meetings of interest rate cuts cumulatively worth 75 basis points.

READ: BSP holds rate steady, surprising market

But at a press conference, BSP Governor Eli Remolona Jr. stressed that the central bank is not yet done with its easing campaign, although he explained that the Philippines should be on guard against a new kind of uncertainty brought by US President Donald Trump’s trade policies.

That means the BSP would still consider hitting the pause button again at its next policy meeting on April 3, Remolona said, adding that the central bank may only resume easing once the cloud of uncertainties clears.

A jumbo reduction to bank reserves is also still on the table this year to further boost economic growth, he said.

“Normally, we would have cut further, but something has changed. The thing that has changed is the uncertainty over what's going on globally, especially the uncertainty over trade policy,” Remolona said.

“We are facing an unusual phenomenon in terms of the uncertainty of policies that will be put in place. Our models don't capture those things very well,” he added.

Balancing act

For many market observers who had penciled in another cut yesterday, local economic conditions were ripe for further easing.

For one, gross domestic product (GDP) growth in 2024 –– a year that saw disruptions from powerful typhoons –– averaged 5.6 percent, missing both the state’s target and market consensus.

And many analysts believe that the BSP has enough room to put more focus on growth. Latest data showed inflation was steady at 2.9 percent in January, sitting comfortably within the 2 to 4 percent target band of the BSP due to declining rice prices and a slower increase in utility costs.

But Remolona argued that growth prospects “continue to be firm”, adding that the economy is still strong enough to expand by at least 6 percent this year despite the external headwinds. The BSP boss also stressed that the risks to the inflation outlook “have become broadly balanced” for this year and next.

Overall, Remolona said yesterday’s decision was a product of a “more difficult” balancing act between inflation and growth.

“Normally, the BSP's inflation concerns get a bigger weight. This is the structure of our policymaking, but we do take account of growth,” he said.

“We don't want to lose output unnecessarily. If we can manage, we want to reduce inflation without reducing output. That's a balancing act,” he added.

In a commentary, Gareth Leather, senior Asia economist at Capital Economics, believes that there is still a need for “aggressive” rate cuts, especially if inflation remains under control.

“Overall, we expect a total of 100 bps of cuts in 2025. Our forecasts are more dovish than the consensus,” Leather said.

(2025/02/14-02:32)