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Interest rates

BSP Cuts Interest Rates for Second Time This Year Amid Continuing Low Inflation

Strategic Insights

— 2 min read

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) implemented its second 25-basis-point (bps) rate cut for the year, reducing the Target Reverse Repurchase rate by 25 bps to 5.25 percent. The decision to cut interest rates was pegged to inflation, which is now forecast to average 1.6 percent this year, lower than its initial estimate of 2.4 percent. This move comes as inflation has been slowing since January 2025, with the inflation print at 2.9 percent at the beginning of the year and slowing significantly to 1.3 percent in May 2025. Analysts believe that the Monetary Board's confidence in controlling inflation is a key factor in this decision, despite the threat of rising oil and gas prices from the Iran-Israel war.

Key Takeaways:

  • The BSP's Target Reverse Repurchase rate was reduced by 25 bps to 5.25 percent, with the interest rates on overnight deposit and lending facilities adjusted to 4.75 percent and 5.75 percent, respectively.
  • The forecast for 2026 inflation was adjusted upward to 3.4 percent, while the estimate for 2027 is now pegged at 3.3 percent, from the initial 3.2 percent.
  • Inflation has been slowing since January 2025, with the inflation print at 2.9 percent at the beginning of the year and slowing significantly to 1.3 percent in May 2025.
  • The Monetary Board is confident that inflation is under control despite the threat of rising oil and gas prices from the Iran-Israel war.
  • The BSP's main concern is economic growth, which can get a stimulus from the decrease in interest rates.
  • The government reported that the country's GDP growth slowed to 5.4 percent in the first quarter, largely due to the slowdown in exports and the manufacturing sector.
  • Analysts note that the decision to cut interest rates may be premature if tariffs and oil prices increase, leading to faster inflation.
  • The reduced rates are expected to benefit lending rates, making it cheaper for businesses and consumers to secure loans, but will depend on the confidence of borrowers to tap the debt market.
  • The Monetary Board acknowledged various risks and emphasized the need for close monitoring of emerging inflationary pressures.
  • The BSP may need to pause or even reverse course to maintain price stability if external shocks materialize.

Statistics:

  • The BSP's Target Reverse Repurchase rate was reduced by 25 bps to 5.25 percent.
  • The interest rates on overnight deposit and lending facilities were adjusted to 4.75 percent and 5.75 percent, respectively.
  • The forecast for 2026 inflation was adjusted upward to 3.4 percent.
  • The estimate for 2027 inflation is now pegged at 3.3 percent, from the initial 3.2 percent.
  • Inflation has been slowing since January 2025, with the inflation print at 2.9 percent at the beginning of the year and slowing significantly to 1.3 percent in May 2025.
  • The country's GDP growth slowed to 5.4 percent in the first quarter.

Sources:

  • "BSP cuts interest rates for second time this year," BusinessMirror, 2025 (no date specified)
  • "BSP lowers interest rates by 25 basis points," BusinessMirror, 2025 (no date specified)
  • "Commentary: BSP's rate cut is defensible but its wisdom depends on BSP's agility in responding to inflation surprises," BusinessMirror, 2025 (no date specified)
  • "Philippines' inflation slows to 1.3% in May, says BSP," BusinessMirror, 2025 (no date specified)
  • "BSP says inflation under control, but wary of external risks," BusinessMirror, 2025 (no date specified)

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