Finance Secretary Ralph Recto signaled a strong possibility of an interest rate cut by the central bank before year’s end, despite ruling out an immediate, unscheduled move. The decision comes in the wake of surprisingly sluggish economic growth reported for the third quarter.
While an “off-cycle” cut isn’t currently planned, Secretary Recto believes a reduction at the December 11 meeting is highly probable. He anticipates a decrease of 25 basis points to the key policy rate, though a larger 50-basis-point cut remains a possibility depending on evolving economic conditions.
Deputy Governor Zeno Ronald Abenoja confirmed that discussions regarding an immediate rate adjustment are not underway, characterizing such suggestions as market speculation. The central bank is carefully assessing the situation before making any further moves.
The recent economic slowdown – with the Philippines recording its lowest GDP growth in over four years at 4% – combined with stable inflation, creates an environment conducive to further monetary easing. This follows a previous 25-basis-point reduction in October, bringing rates to a three-year low.
The central bank has already lowered borrowing costs by a total of 175 basis points since initiating an easing cycle last August. Governor Remolona previously indicated the potential for another 25-basis-point cut in December, with further adjustments possible in 2026 to bolster economic activity.
The weaker-than-expected GDP figures sparked immediate market speculation about an off-cycle rate cut, including a potential reduction in banks’ reserve requirement ratio. Such a move could inject substantial liquidity into the banking system, potentially stimulating lending and investment.
However, the economic data has also triggered some market volatility. The Philippine peso recently hit a new low against the US dollar, prompting questions about potential intervention by the central bank. Officials have stated they will intervene only if the peso’s decline fuels inflation.
Secretary Recto explained that the central bank’s interventions are primarily aimed at stabilizing the exchange rate, preventing excessive fluctuations. The peso’s future trajectory is also heavily influenced by the actions of the US Federal Reserve.
A coordinated rate cut by both the Philippine central bank and the Federal Reserve in December could help stabilize the peso. The Federal Reserve recently implemented its second 25-basis-point cut this year, but further easing remains uncertain due to ongoing economic considerations.
The situation remains fluid, with policymakers closely monitoring economic indicators and global developments. The ultimate decision on interest rates will be a delicate balancing act, aimed at supporting economic growth while maintaining price stability.
