MONETARY authorities will likely cut key interest rates by a total of 74 basis points (bps) next year, a Cabinet official said, in line with easing inflation and potential policy shifts by the US Federal Reserve (Fed).
Finance Secretary Ralph Recto, a member of the Bangko Sentral ng Pilipinas’ (BSP) policymaking Monetary Board, told reporters on Tuesday the outlook was currently the market consensus.
“You know, my position was a 100 [bps cut]. But [that] depends also [on] what happens, what the Fed does,” he said, adding that the board would also be monitoring consumer price growth.
The Monetary Board has so far cut the BSP’s policy rate twice this year, by 25 bps each in August and September, and is expected to again do the same today.
This would bring the central bank’s benchmark rate to 5.75 percent.
Lower interest rates, said Recto were expected to spur consumption and investment, in turn propping up economic growth.
“If your credit card interest rate was lower, you’d probably consume more, too, right? So, more investment, more consumption, yeah. Lower interest rates,” he explained, stressing the role of monetary easing in supporting economic growth.
Economic managers earlier this month narrowed the 2024 gross domestic product growth target to 6.0-6.5 percent after a lower-than-expected 5.2 percent in the third quarter.
Most analysts expect the goal to be missed by Recto, and his colleagues at the interagency Development Budget Coordination Committee are optimistic of a 6.0-percent result.
The 2025 target, meanwhile, was expanded to 6.0-8.0 percent and Recto said this was achievable via increased investments.
“It’s essentially about attracting more investments. With our regular efforts and proper utilization of the budget, we can likely achieve 6-percent growth,” he said.
“However, with increased investments, growth could reach around 6 to 7 percent,” he added.
On the fiscal front, meanwhile, Recto said the government was focused on rebalancing its borrowing mix to reduce foreign exchange risks.
He said that a planned shift to an 80-20 domestic-to-foreign borrowing ratio was part of a long-term strategy to reach a 90-10 mix.
“We want to limit our foreign borrowings. We want to reduce that. So next year, I think it’s 75-25. Possibly even 80-20. I think the plan is to reduce that to 90-10,” he said.
The borrowing mix for this year is skewed toward domestic sources at 75 percent, with the remaining 25 percent coming from abroad.
Finance Secretary Ralph Recto. Photo courtesy of Department of Finance
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