By Katherine K. Chan
FINANCE SECRETARY Ralph G. Recto ruled out an “off-cycle” move on monetary policy easing despite weaker-than-expected third-quarter growth, but noted there is a high chance of a rate cut at the central bank’s next meeting.
“I’m not sure about an ‘off-cycle’ cut, but there’s a good chance for a rate cut before the end of the year,” Mr. Recto told BusinessWorld on the sidelines of a Senate hearing on Thursday.
He said the Monetary Board is more likely to cut the key policy rate by 25 basis points (bps) at the Dec. 11 meeting.
Asked if there is a chance for a 50-bp cut, Mr. Recto said: “There’s always a chance. It all depends on what happens. But I think there’s a higher probability for a 25-bp cut.”
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Zeno Ronald R. Abenoja told BusinessWorld that they have not discussed any possible off-cycle monetary policy easing.
“I haven’t heard anything,” he said. “So, it’s probably just rumors. As far as I know, there are no discussions.”
In October, the BSP lowered borrowing costs by 25 bps to a three-year low of 4.75%. It has so far reduced the key policy rate by 175 bps since it began its easing cycle in August last year.
The slower-than-expected gross domestic product (GDP) growth in the third quarter and benign inflation give the BSP room for another rate cut in December.
The Philippine economy grew by 4% in the third quarter, the slowest growth seen in over four years or since the first quarter of 2021.
BSP Governor Eli M. Remolona, Jr. in October said they could cut rates by another 25 bps at the Dec. 11 meeting and potentially more in 2026 to support the economy amid a slowdown due to the ongoing flood control scandal.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort on Thursday said the third-quarter GDP data prompted speculation about an off-cycle interest rate cut.
Mr. Ricafort said it is “possible, but not 100% sure” for the BSP to cut rates before its scheduled meeting on Dec. 11.
“There have been rumors in the market since (Wednesday) about a possible off-cycle monetary easing, particularly a cut in large banks’ RRR (reserve requirement ratio), after the softer local GDP growth data (on Nov. 7),” he said in a Viber message on Thursday.
“Every (one) percentage point cut in large banks’ RRR is equivalent to about P180-billion additional liquidity infused into the banking system that could increase lending and other investments such as fixed income or bonds, among others,” he added.
On Feb. 21, the BSP cut universal and commercial banks’ RRR by 200 bps to 5%, which took effect in the week of March 28.
Meanwhile, Mr. Ricafort noted that the latest third-quarter GDP data have caused the yields on the PHP (Philippine peso) Bloomberg Valuation Service to decline slightly and the peso to slump to a fresh low against the US dollar.
On Nov. 12, the peso fell to a new record low after closing at P59.17 versus the greenback, slipping by 18.5 centavos from its P58.985 finish on Tuesday.
The BSP chief earlier said they will not intervene in the foreign exchange market unless the peso’s depreciation leads to inflationary pressures.
“I think the BSP intervenes just to make sure that the curve is not too wide,” Mr. Recto said.
“But I’m sure everyone knows that the BSP, to a certain degree, intervenes in the market just to flatten the curve.”
He also noted that the peso might not weaken further if both the BSP and the US Federal Reserve would cut in December.
“It all depends on what the Fed does,” Mr. Recto said. “If the Fed cuts rates also, then it would be the same.”
Last month, the Fed delivered its second 25-bp cut this year, bringing its interest rate to the 3.75-4% range. This brought its total cuts to 150 bps since September 2024.
However, December easing by the Fed remains uncertain as policymakers weigh concerns over economic data after US President Donald J. Trump ended the longest US government shutdown last week.
