Bangko Sentral cuts policy rate to 5% amid benign inflation, slow GDP growth

Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. describes the latest policy rate as the 'Goldilocks rate' that will boost economic output while keeping inflation manageable

The Bangko Sentral ng Pilipinas (BSP) on Thursday, August 28, reduced the country’s key interest rate by 25 basis points as inflation is forecast to settle below the government’s target range.

The Monetary Board’s latest rate cut places the country’s policy rate to 5%.

BSP Governor Eli Remolona Jr. said the rate reduction places the country at a “sweet spot” in terms of inflation and economic output.

“The projected inflation rate over the next year or so is where we want it to be. Output is moving to where we think our capacity is. The policy rate itself is at our Goldilocks rate, neither too high nor too low. I would characterize this as still dovish, but slightly less so than before in terms of the forward guidance,” he explained.

Interest rates are one of the many tools that central banks worldwide use to control inflation. When a central bank lowers interest rates, it makes borrowing costs cheaper and encourages people to spend more. (READ: How interest rate hikes impact your money and the economy)

Inflation in July further cooled to 0.9% as rice prices dropped for the seventh consecutive month. The BSP forecast the average inflation rate in 2025 to settle at 1.7%, below the government’s target range of 2% to 3%.

Meanwhile, the Philippines’ gross domestic product (GDP) grew 5.5% in the second quarter. While this was within analysts’ expectations, this placed GDP growth in 2025 just below the government’s target of 5.5% to 6.5%.

With just two policy meetings left for the year, Remolona said the BSP has space for one more rate cut to mark the end of the central bank’s easing cycle. But he noted that the current 5% is where the central bank wants to be for now.

BSP Deputy Governor Zeno Abenoja also noted that economic output declined in June and July, and the monetary authority could cut rates more if production continues to weaken.

“Looking at some of the components in terms of inventory levels,  job orders, hiring plans, which seem to indicate that in the near term, there could be some moderation in economic activity. This is one piece that has been considered in assessing the policy stance at this round and again in future meetings,” Abenoja said.

The Monetary Board’s next policy meeting is on October 9.

Source: Rappier