Governor of the Bangko Sentral ng Pilipinas (BSP) Eli Remolona has suggested the possibility of a 50-basis point reduction in the monetary policy rate this year, along with a 200-basis point cut in banks' reserve requirements by mid-year.

While initial discussions considered a total rate cut of 100 or 75 basis points, Remolona deemed this unlikely due to persistent inflation.

He indicated that a 50-basis point reduction was more feasible, as maintaining a policy buffer against inflation remained essential. However, he clarified that the cut would not be implemented in a single monetary board meeting or in consecutive sessions, ABS CBN reports.

“That sounds about right, 25 [in the] first half, 25 [in the] second half. Not every meeting we’ll see policy rate decline,” Remolona said to reporters.

High interest rates help curb inflation, but they can also slow down economic growth. The country's GDP for 2024 grew by 5.6%, falling short of the government's target range of 6 to 6.5%.

The BSP governor said that the Monetary Board is considering a 200-basis point reduction in the bank's reserve requirement ratio by June or July this year.

“That’s the amount we’re discussing 200 basis points, from 7% to 5% for the big banks,” Remolona said. Currently, big banks are required to maintain a 7% reserve requirement, while other banks, such as thrift banks and digital banks, have a lower reserve requirement ratio.

Furthermore, Remolona stated that a 5% reserve requirement could benefit the economy, as it would allow banks to have more funds available to lend to the public and businesses.

“It should raise the deposit rate a little bit if you cut the reserve requirement, while lowering the loan rates,” he went on to add.