The International Monetary Fund (IMF) recommends the Bangko Sentral ng Pilipinas (BSP) to gradually reduce its policy rate and adopt a neutral stance, while cautioning against supply shocks.
The Bangko Sentral ng Pilipinas (BSP) could gradually reduce its policy rate and shift toward a neutral monetary stance but warned of risks from supply shocks, the International Monetary Fund (IMF) said. 'Moving to a neutral stance through continued gradual reduction of the policy rate is appropriate,' the IMF said in the Philippine Staff Report.
'A data-dependent approach and careful communication around policy settings will be important to manage expectations amid uncertainty around inflation and the US monetary policy path,' it added.The IMF, however, noted that a 'measured reduction' in the policy rate could be appropriate, considering the return of inflation to target levels and the emergence of a negative output gap.It emphasized that any rate adjustments should be cautious and data-driven, ensuring that inflation expectations remain firmly anchored within the target band. 'Along the declining rate path, the BSP must ensure that its stance continues to anchor inflation and inflation expectations firmly within the target band,' it said.The BSP policymaking body Monetary Board has already slashed key rates by a total of 75 basis points (bps), ending the year with rates at 5.75 percent.It began easing in August, ordering a 25-bps cut as inflation returned to the 2.0- to 4.0-percent target, and followed this with another 25 bps reduction in October.BSP Governor Eli Remolona Jr. already stated that they 'will maintain an easing posture' but a '100 bps over 2025 would be too much.'He stressed that they are taking 'baby steps' as they 'still worry that inflation might start to rise again.'The IMF highlighted the importance of balancing inflation and growth risks in setting monetary policy.While inflation risks remain tilted to the upside due to potential future shocks and second-round effects, downside risks to growth — such as weaker-than-expected domestic demand recovery — might necessitate a quicker rate cu
MONETARY POLICY INFLATION PHILIPPINES GLOBAL ECONOMY INTEREST RATES
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