As inflation eases, the Bangko Sentral ng Pilipinas (BSP) is poised to consider significant interest rate reductions, with Finance Secretary Ralph Recto suggesting the possibility of mirroring the US Federal Reserve's recent aggressive move. Recto, who sits on the BSP's Monetary Board, indicated that a half-percentage point cut could be feasible following the Fed's decision to lower rates by 50 basis points last week, as reported by Manila Times.

The BSP initiated its easing cycle in September, cutting the benchmark rate by 25 basis points to 6.25%. With two policy meetings left this year—one scheduled for October and another for December—market expectations are growing for further reductions. BSP Governor Eli Remolona Jr. had previously noted the potential for another 25 basis point cut this quarter, but Recto's comments raise the possibility of a more substantial adjustment in light of global trends.

Recto believes that lower interest rates could facilitate the Philippines' economic growth targets, which aim for an expansion of 6.0% to 6.5% this year. With inflation expected to decelerate to around 2.5% in September and averaging 3.4% for 2024, the outlook appears optimistic. He emphasised the benefits of reduced inflation, suggesting that it would boost GDP growth, create jobs, and lower borrowing costs, fostering a healthier economic environment.

However, analysts remain cautious. Capital Economics forecasts GDP growth will only reach 5.1% this year, hindered by tighter fiscal policies and declining remittances. The firm anticipates that while growth may improve to 5.5% in 2025, it will still fall short of the government’s target range of 6.5% to 7.5%. They predict further easing measures, including 25 basis point cuts in both October and December, which would lower the policy rate to 5.75% by year-end.

HSBC Global Research economist Aris Dacanay highlighted the BSP's data-driven approach to monetary policy. He noted that while recent reductions in the reserve requirement ratio (RRR) increase banks' funding flexibility, they do not necessarily indicate an urgent shift in monetary policy. The BSP's cautious stance reflects a commitment to balance economic growth while managing inflationary pressures.

As the Philippines navigates these economic dynamics, the potential for bold rate cuts may shape the landscape for consumers and businesses alike, fostering a more conducive environment for growth and investment.