BSP Cuts Rates by 25 Basis Points, Signals Continued Easing in 2025

The Bangko Sentral ng Pilipinas (BSP) announced a 25-basis-point cut to key policy rates on Thursday, marking the third consecutive easing in its monetary policy. Effective Friday, December 20, the reverse repurchase (RRP) rate will drop to 5.75%, the overnight deposit rate to 5.25%, and the overnight lending facility rate to 6.25%.

Monetary Policy Adjustment

The recent cut follows similar moves in October and August, the latter being the first reduction in nearly four years after an off-cycle hike in October 2023.

BSP Governor Eli Remolona Jr. explained that while inflation risks persist, the overall inflation outlook supports a shift toward less restrictive monetary policy.

“The within-target inflation outlook and well-anchored inflation expectations continue to support the BSP’s shift toward less restrictive monetary policy. Nonetheless, the monetary authority will continue to closely monitor the emerging upside risks to inflation, notably geopolitical factors,” Remolona stated.

Inflation Concerns Persist

The BSP revised its inflation forecast for 2024 to 3.2%, up from 3.1%, citing weather disturbances, rising transport fares, and increased electricity rates as primary risks.

For 2025, the baseline inflation forecast was slightly increased to 3.3%, with a risk-adjusted forecast of 3.4%.

Despite easing monetary policy, Remolona emphasized caution:

• “The reason we’re cutting in baby steps is we’re not sure about inflation. We’re worried it might still rise again,” he said.
• BSP aims to balance price stability while supporting sustainable economic growth and employment.

Economic Context

The decision coincides with higher electricity rates from Meralco, which raised household rates by 10.48 centavos per kilowatt-hour (kWh) for December, bringing the average rate to ₱11.9617 per kWh.

Outlook for 2025

Looking ahead, the BSP plans a measured approach to easing in 2025. While further rate cuts are likely, Remolona said 100 basis points would be “too much,” but 0 basis points would be “too little.”

“If the data are not too surprising, then we will continue to ease. If there’s a big surprise, then we will change direction of monetary policy,” he said.

The BSP remains focused on managing inflation risks while gradually supporting economic recovery through calibrated monetary easing.