THE Bangko Sentral ng Pilipinas cut the interest rates by 25 basis points from 6.25 percent to six percent during its monetary policy meeting on Wednesday, Oct. 16, 2024.
The interest rates on the overnight deposit and lending facilities were accordingly adjusted to 5.50 percent and 6.50 percent, respectively. These will take effect on Thursday, Oct. 17.
“The Monetary Board’s decision is based on its assessment that price pressures remain manageable,” the BSP said in a statement.
Reduced interest rates stimulate economic activity by making borrowing cheaper and encouraging spending and investment. As consumers pay less in interest, they are more likely to take out loans and spend, boosting overall demand for goods and services. It also encourages companies to invest in new projects, expand operations and hire more employees.
With lower interest rates, home-buying becomes more attractive. It can also lead to stock market growth as investors may shift from fixed-income assets like bonds to higher-yielding investments such as stocks.
The reduction in interest rates was buoyed by the improving inflation environment. September inflation dropped further to 1.9 percent, the lowest since May 2020 and way below the 3.3 percent recorded in August 2024.
The sharp reduction in September’s inflation was primarily due to slower increases in the prices of food and non-alcoholic beverages. Rice inflation dropped significantly to 5.7 percent from 14.7 percent the previous month.
“The Monetary Board expects domestic economic growth to continue to be strong. This reflects improved prospects for household income and consumption, investments and government spending, which are supported by the start of the monetary easing cycle in August and the announced reduction in reserve requirements in October,” the BSP said.
The central bank said the risk-adjusted inflation forecast for 2024 eased to 3.1 percent from 3.3 percent in the previous meeting.
However, the risk-adjusted forecasts for 2025 and 2026 have increased slightly to 3.3 percent and 3.7 percent, respectively.
The balance of risks to the outlook for 2025 and 2026 has shifted toward the upside owing mainly to potential adjustments in electricity rates and higher minimum wages in areas outside Metro Manila. Meanwhile, downside factors continue to be linked to the impact of lower import tariffs on rice.
Given these projections, the monetary authority said it will continue to closely monitor the emerging upside risks to inflation, including geopolitical factors. It will also maintain a measured approach in its easing cycle to ensure price stability conducive to sustainable economic growth and employment. / KOC