Philippines plans interest rate cut, less peso intervention

The Bangko Sentral ng Pilipinas (BSP) is reducing its intervention in the foreign exchange market. Central bank governor Eli Remolona announced that they are likely to cut interest rates in April, aiming for a decrease of 25 basis points. He mentioned this during an interview at the HSBC Global Investment Summit in Hong Kong. Remolona indicated that total rate cuts for the year could reach 75 basis points, depending on future data. He also noted that there might be more risks for inflation to rise in 2025 and 2026. The Philippines last lowered interest rates in December and held off on further cuts in February. Inflation has slowed down and has remained within the BSP's target range of 2% to 4% for seven months. The Philippine peso has appreciated by nearly 1% against the US dollar this month, making it the second strongest currency in Asia after the Indian rupee. This improvement reduces the need for heavy market interventions from the central bank. Remolona mentioned that the BSP has been less active in the currency market recently. Additionally, a significant decrease in the reserve requirement ratio for major banks will take effect this Friday. This decrease, announced last month, will lower the ratio from 7% to 5%, aiming to inject billions of dollars into the economy. Remolona stated that the reserve requirement is a “distortionary measure” and hinted at a desire to reduce it further, potentially to zero. However, he acknowledged the need to manage the consequences on liquidity carefully. The BSP decided to cut the reserve requirement despite keeping interest rates unchanged in February due to global uncertainties.