Inflation slows, Philippine central bank cuts interest rates for second time this year

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In a recent interview, the Central Bank of the Philippines announced a significant decision regarding its monetary policy. On October 16, the bank lowered its key policy interest rate by 25 basis points to 6.0%, marking the second rate cut this year. This adjustment comes as a response to easing inflation pressures.

Starting October 17, the target reverse repurchase rate will drop from 6.25% to 6.0%, while the overnight deposit and loan rates will be adjusted to 5.50% and 6.50%, respectively.

Earlier this year, in mid-August, the Central Bank made its first rate cut, reducing the key policy interest from 6.50% to 6.25%. This marked the first reduction in nearly four years, signaling the beginning of a monetary easing cycle.

Governor Felipe Medalla mentioned that this latest decision was made after a careful assessment of manageable inflation pressures. He noted that the inflation forecast for this year has been adjusted down from 3.3% to 3.1% since the last meeting.

Data from the Philippine Statistics Authority earlier revealed that the inflation rate fell to 1.9% in September, the lowest level in over four years. The average inflation rate for the first nine months of this year stands at 3.4%, aligning with the government’s target range of 2% to 4%.

However, the Central Bank has raised its inflation expectations for 2025 and 2026, citing anticipated increases in global oil prices and electricity tariffs. The inflation forecast for 2025 was revised upward from 2.9% to 3.3%, while the 2026 forecast rose from 3.3% to 3.7%.

Medalla expressed optimism about the effects of the monetary easing that commenced in August, noting steady growth in household consumption, investment, and government spending. He emphasized that the future inflation outlook remains within the target range, which will support the Central Bank’s continued implementation of a more accommodative monetary policy.

Additionally, Medalla hinted that another rate cut of 25 basis points might be on the horizon in December.