Monetary Policy Stance: 09 October 2025

Summary

In this press briefing, the Bangko Sentral ng Pilipinas (BSP) discussed their decision to lower the key policy rate by 25 basis points to 4.75%, citing a favorable inflation outlook and the need to support economic growth amid concerns over infrastructure spending. The BSP also highlighted revised inflation forecasts for 2026 and 2027, noting lower-than-expected growth and the potential impact of governance issues on business sentiment. Further, they addressed foreign fund outflows, peso depreciation, and possible reforms to prevent corruption in government-related financial transactions.

Takeaways

• 😀 The BSP decided to reduce the key policy rate by 25 basis points, lowering the reverse repurchase rate to 4.75%. This move reflects the current economic conditions and a recalibration of growth forecasts.
• 😀 Inflation expectations remain well-anchored, but there are risks from possible electricity rate hikes and potential increases in rice import tariffs. These risks are seen as limited in impact.
• 😀 Business sentiment has been negatively impacted by governance concerns surrounding public infrastructure spending, which has led to a slowdown in private sector investment, particularly in the services sector.
• 😀 The BSP's updated GDP growth assumption for 2023 is now lower than the initial forecast, with the economy expected to grow at a pace slightly below the government's target of 6%.
• 😀 The BSP’s inflation forecast for 2026 and 2027 has been slightly adjusted downward due to weaker growth and lower demand, with projections for 2026 at 3.1% and 2027 at 3.2%.
• 😀 The BSP remains open to further rate cuts, with more room for easing given a more accommodative inflation outlook and moderating domestic demand.
• 😀 Foreign fund outflows have put pressure on the Philippine peso, but the BSP is not aiming to defend the peso from these market movements unless the depreciation becomes inflationary.
• 😀 The BSP is working on implementing reforms to prevent corruption in government-related transactions, including new thresholds for cash and digital transfers and stricter reporting requirements for banks.
• 😀 Despite the weakening growth outlook, there is hope that governance issues will be short-lived and that improved infrastructure spending will positively impact business sentiment and economic growth.
• 😀 In light of external challenges, the BSP continues to monitor governance issues domestically, as they have a more significant impact on the economy than previous external factors like global inflation and interest rates.

Q & A

What was the main decision announced at the BSP's monetary policy meeting?

The BSP decided to reduce its key policy rate by 25 basis points, lowering the target reverse repurchase rate to 4.75%. This decision reflects adjustments based on the latest economic conditions, including business sentiment and inflation outlook.

What factors influenced the BSP's decision to cut interest rates?

The BSP's decision to cut interest rates was influenced by a favorable inflation outlook, with inflation expectations remaining anchored. However, there are some risks, such as potential increases in electricity rates and rice tariffs. Weaker economic growth and lower demand also played a role in this decision.

How does the BSP assess the impact of infrastructure spending on economic growth?

The BSP highlighted that concerns over governance issues related to infrastructure spending have dampened business sentiment, particularly in the private sector. This has affected investment, especially in services, and has contributed to a weaker economic outlook.

What is the BSP's updated inflation forecast for 2025, 2026, and 2027?

The BSP forecasts inflation to average 1.7% in 2025, slightly higher than the previous forecast of 1.7%. For 2026, the inflation forecast is 3.1%, and for 2027, it is 2.8%. These adjustments reflect weaker growth and moderating demand.

What does the BSP believe will drive inflation over the next few years?

The BSP believes that weaker demand and moderating domestic growth will result in lower inflation. While there are risks from potential increases in electricity rates and tariffs on rice imports, these risks are considered limited.

What role does business sentiment play in the BSP's current outlook?

Business sentiment is a key factor in the BSP's outlook, with weaker sentiment due to concerns over infrastructure spending leading to lower investment and slower growth. This has contributed to the BSP's decision to lower the policy rate and its revised inflation and growth projections.

How does the BSP view the potential for further rate cuts in the coming months?

The BSP has room for further rate cuts, with estimates suggesting that the policy rate could be between 4% and 5%. While the BSP has more wiggle room than before, future cuts will depend on evolving economic conditions and the response of the national government to infrastructure and governance issues.

What impact does the BSP anticipate from its 25 basis point rate cut on GDP growth?

The BSP expects the impact of the rate cut on GDP growth to be felt within a year, with the peak effect occurring around 18 months later. The rate cut is designed to support economic growth and job creation, especially in light of moderating domestic demand.

How does the BSP respond to foreign fund outflows and the depreciation of the peso?

The BSP does not plan to defend the peso against foreign fund outflows unless the depreciation becomes sharp and inflationary. The BSP aims to manage the situation without direct intervention unless necessary to prevent inflationary pressures.

What steps is the BSP taking to prevent corruption in government financial transactions?

The BSP is considering reforms that would allow banks to refuse transactions that raise suspicions of corruption. These reforms include setting thresholds for transfers and improving monitoring systems to identify irregular financial movements, especially involving government-related transactions.