Interest rates may stay elevated over the next two years as the Bangko Sentral ng Pilipinas ruled out an aggressive adjustment of 150 basis points or more.
The overnight borrowing rate hit a record low of 2.0 percent at the height of the pandemic before the BSP started a monetary tightening cycle that pushed up the interest rate to 6.5 percent.
BSP Governor Eli Remolona Jr. said Tuesday cutting interest rates by 150 basis points in two years would be too much, given the economic situation.
“Given the present [economic] trajectory, it is too aggressive,” Remolona said.
The Philippine economy grew 5.7 percent in the first quarter of 2024, lower than the government’s target range of 6 percent to 7 percent.
Remolona said the risks of an “aggressive” cut in interest rates is a “hard landing” or a sharp drop in economic growth. “In taming inflation we don’t want unnecessary loss of output,” he said.
Finance Secretary Ralph Recto, a member of the Monetary Board, earlier said interest rates could go down by 150 bps in the next two years.
Since then, the BSP issued a gag order preventing officials from commenting on monetary action.
The Monetary Board earlier kept the overnight borrowing rate steady at 6.5 percent for the fifth consecutive policy meeting since October 2023.
It also maintained the interest rates on overnight deposit and lending facilities at 6.0 percent and 7.0 percent, respectively.
