BSP Maintains Measured Rate Cuts Despite October Inflation Pickup

Despite the fact that inflation accelerated in October, the Bangko Sentral ng Pilipinas (BSP) stated that it would stick to its "measured" rate-cutting cycle, preventing extreme easing as long as price growth continued to follow monetary authorities' projections.

“The latest inflation outturn is consistent with the BSP’s assessment that inflation will continue to trend closer to the low end of the target range over the succeeding quarters,” the BSP said in a statement.

“The Monetary Board will maintain a measured approach in its easing cycle to ensure price stability conducive to sustainable economic growth and employment,” it added.

Despite the possibility of below-target economic growth, the BSP is modifying monetary conditions because inflation has stayed within its goal range. In contrast to the US Federal Reserve's September cut, this easing started in August.

With Governor Eli Remolona Jr. advocating for progressive easing until the key rate drops to 4.5% by 2025, the BSP lowered the policy interest rate to 6% in October. A 25 basis point cut was also discussed by Remolona, although a half-point cut is improbable.

Even though a cut is possible based on inflation projections, aggressive action might not be wise in the present situation. A conservative approach to rate decreases is more appropriate to maintain stability because domestic and international supply shocks can quickly change the outlook for inflation," he continued.

Separately, Chinabank Research analysts predicted that positive base effects, lower rice tariffs, and "benign price pressures in other commodity groups" would keep inflation below 3 percent this month and the following.

“Hence, we think the BSP has room to continue lowering interest rates at its next policy meeting in December,” they said.

The BSP's decision to prioritize price stability over aggressive easing aligns with its long-term goal of fostering sustainable economic growth. By maintaining a measured approach, the central bank aims to create a conducive environment for businesses to invest, innovate, and create jobs. As the economy continues to recover, the BSP will play a crucial role in ensuring that the Philippines remains a resilient and prosperous nation.