Better days ahead for businesses, consumers as rate cuts take root

Businesses and consumers will get an extra boost as monetary policy easing goes into full swing amid slow inflation.

The Bangko Sentral ng Pilipinas’ (BSP) cuts to policy interest rates and banks’ reserve requirement ratio (RRR) should help stoke business sentiment, allowing companies to secure funding for expansion on relatively cheaper terms.

Private investment has so far lagged other economic-growth legs – household and public spending – and has yet to recover to its pre-pandemic levels.

After data showed consumer prices increased at its slowest pace in over four years in September, BSP on October 16 delivered another 25 basis point rate reduction, sustaining its policy easing this year.

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Easing price pressure will also provide a springboard to consumer confidence. Domestic demand has been sluggish, with household spending growth being flat at 4.6% year-on-year for the first two quarters of 2024. A more favorable inflation environment and a robust labor market should also stoke a holiday spending spree, according to the National Economic and Development Authority.

For the rest of the year, consumer price rise will stay within BSP’s 2-4% target range due to favorable base effects and the harvest season helping ease pressure on food costs.

Upside risks to inflation chiefly come from overseas, including geopolitical tensions causing volatility in oil prices and the results of the upcoming US elections.

While BSP raised its inflation forecast for 2025 and 2026, monetary authorities are

confident that domestic growth should remain robust, supported by policy rate and reserve requirement cuts.

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SETH ANGELO GAMBOA is a Research Officer from Metrobank’s Trust Banking Group who covers both Philippine and offshore macroeconomic research. He graduated cum laude from the University of the Philippines Los Baños with a degree in Economics, specializing in Development Economics. He is a Certified UITF Sales Person (CUSP) and is a Certified Treasury Professional (BAP-TCP). Seth enjoys playing video games, watching anime, and going on out-of-town trips with his loved ones.

ANNA DOMINIQUE CUDIA, MBA, CSS, is the Head of Markets Research at Metrobank’s Trust Banking Group, spearheading the generation and presentation of financial markets insights to internal and external clients. She used to be with Metrobank’s Investor Relations, where she brought in international awards and took part in various multi-billion peso and dollar capital raising activities. She holds a Master of Business Administration (Finance) degree, with distinction, from the University of London, and industry certifications in finance. She is a naturally curious person and likes to travel here and abroad.