BSP sees 2 more rate cuts this year

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is penciling in two more 25-basis-point rate cuts this year as inflation is expected to stay low, but global and political uncertainties continue to weigh on the outlook.

In a press chat yesterday, BSP Governor Eli Remolona Jr. said a 25-basis-point rate cut is “on the table” for the Monetary Board’s June 19 meeting, with room for at least one more later this year, both seen as “baby steps” amid the current economic climate.

“Maybe two more rate cuts this year,” Remolona told reporters, adding that the adjustments would not necessarily come back-to-back and would remain at 25 basis points each as the BSP navigates what he called “uncharted territory” for most central banks.

Asked about the factors that could prompt the BSP to cut more or less, Remolona said: “That’s the hardest part – we don’t really know. This is a new environment for all of us. That’s what makes us most uncomfortable.”

He also said that a larger 50-basis-point reduction would signal that the central bank is reacting to deeper concerns in the economy.

“That means we’re worried about something,” the BSP chief said. “Right now, we’re just very uncomfortable with our usual models, which were designed for a different environment.”

Remolona pointed to a spike in global policy uncertainty driven by political developments in the United States. Using models that count keywords in media reports, the BSP has seen a notable surge in both general and trade policy uncertainty since the US elections late last year, even before financial markets fully reacted.

“The only thing that really moved early on was the risk premium in government bonds,” Remolona said.

“Even the markets were befuddled by the uncertainty. They didn’t know how to price it,” he added.

While markets only reacted more significantly after US President Trump’s announcement of reciprocal tariffs in April, Remolona said the BSP continues to monitor how this uncertainty could affect investor behavior and growth in the Philippines.

“We’re very uncomfortable because our analytical framework was built for a different environment,” he said. “There’s no history we can rely on for this kind of uncertainty.”

Despite this, Remolona said the central bank’s inflation outlook remains benign, even as prices are expected to pick up slightly in the coming months.

Inflation has fallen below the two to four percent target, but Remolona said it is expected to climb back into the band, though still remain low by historical standards.

“There’s still room to cut rates further, but we have to be careful not to cut too much and overstimulate demand,” he said. “If demand exceeds capacity, that would be inflationary.”

Meanwhile, Remolona downplayed the impact of the Cabinet shakeup, saying it had only a mild effect on financial markets.

“I think the President just wants a freer hand and maybe to review the performance of his Cabinet. But I expect that most of them will be reappointed or their resignations will not be accepted,” he said.

According to Remolona, the economic team remains “very professional” and is “doing all the right things.”

On the international front, Remolona said the BSP plans to trim its holdings of US Treasuries to mitigate exposure following Moody’s recent downgrade of US sovereign debt by one notch to Aa1 from Aaa.

However, he said that US Treasuries remain a cornerstone of global liquidity and would likely stay central to the Philippines’ foreign reserves strategy.

“US Treasuries are still the most liquid market, and the dollar remains the dominant currency in global trade and finance,” he said, adding that about 80 percent of the BSP’s reserves are in dollar-denominated assets.