Philippine Central Bank Holds Rates Steady, Signals Major RRR Cut Amid Global Uncertainties

The Bangko Sentral ng Pilipinas (BSP) decided to pause its recent cycle of interest rate cuts, keeping the key rate steady at 5.75% on February 13, 2024. This move comes as the central bank assesses rising global uncertainties that may impact the economy. Despite this hold, the BSP signaled its plans to lower the reserve requirement ratio (RRR) in the near future, offering banks more liquidity to stimulate economic growth.

Facade of the Treasury Department in the Philippines

BSP Holds Interest Rate Amid Global Concerns

In an unexpected move, the BSP opted to keep its key interest rate steady. Governor Eli Remolona explained that, while the rate pause was necessary for now, the central bank is still in an easing cycle and has no plans to tighten its stance. The decision was largely influenced by rising global uncertainties, prompting the BSP to reassess its economic models.

Reserve Requirement Ratio (RRR) to Be Cut Soon

Although the key interest rate remains unchanged, the BSP has plans to reduce the reserve requirement ratio (RRR) by 200 basis points to 5% from the current 7%. While the exact timing of this move is still under review, it may happen potentially within the first half of 2024. This reduction is expected to provide more liquidity to the banking sector and encourage economic growth.

Focus on Domestic Economic Factors

Governor Remolona emphasized that the BSP’s decisions are primarily based on domestic economic conditions rather than global factors. While inflation in the Philippines remained stable at 2.9% in January—well within the target range of 2-4%—there are still upward risks, especially from potential price hikes in utilities and transport. He reiterated that domestic inflation and economic growth continue to be the primary influences on the central bank’s policies.

Surprising Pause After Underwhelming GDP Growth

The BSP’s decision to hold rates came as a surprise to many economists, who had expected another 25-basis-point cut following the country’s lower-than-expected GDP growth in 2024. The economy’s growth fell short of targets for the second consecutive year, but the BSP’s decision reflects a careful balancing of local and global factors.

Looking Ahead: Navigating Risks and Supporting Growth

As the global economic landscape remains uncertain, particularly with ongoing tariff issues in the US and other external challenges, the BSP’s cautious approach makes sense. Looking forward, the central bank’s planned RRR cut is expected to inject more liquidity into the banking system, which could stimulate lending and investment, supporting continued economic growth in the Philippines.