MANILA (UPDATE 2) —  The Bangko Sentral ng Pilipinas has cut its key rate by 25 basis points in line with the expectations of analysts.

The benchmark target reverse repurchase rate is now down to 5.5 percent, from 5.75 percent in February. BSP Governor Eli Remolona said they cut interest rates as inflation seems to be slowing down. 

"The latest inflation forecasts have declined from the inflation forecasts in the February policy meeting," said BSP Governor Remolona. The risk-adjusted forecast for 2025 was lowered to 2.3 percent from 3.5 percent, while for 2026 this was also lowered to 3.3 percent from 3.7 percent. 

"The lower inflation rates that we're looking at give us more degrees of freedom," Remolona added. 

The BSP said higher transport and utility costs and meat prices may drive inflation upward. Meanwhile, the effects of lower tariffs on rice imports may help keep inflation lower. 

The central bank was widely expected to implement the cut as early as February amid easing inflation and slowing economic growth, but Remolona said monetary authorities needed time to recalibrate its models amid "uncertainty" in the world economy, particularly in trade policies. 

The rate cut comes amid an escalating global trade war following US President Donald Trump's imposition on tariffs on many countries, which he later suspended after causing chaos in world markets. But with the announcement of the tariff rates, Remolona said there was less uncertainty. 

"Of course there's a 90 day suspension of these tariffs and the tariffs may change, so there's still some uncertainty. But there's less of it than before," the central bank chief added.

He said the Monetary board noted the more challenging external environment which would dampen global GDP growth and pose a downside risk to domestic economic activity. 

But Remolona also noted that the Philippines was different from the rest of the world in terms of the impact of tariffs as it relies relatively less on trade than its neighbors. The Philippines also has a lower reciprocal tariff rate, he added. 

"Like the rest of the world, we're also looking at lower growth. But unlike the rest of the world we're also looking at lower inflation," he said.   

International commodity prices, especially of crude oil, have gone down because of worries over the impact of the tariffs on global trade, according to BSP's Monetary Policy Sub-Sector head Zeno Ronald Abenoja.

"There are some downside risks but we think there are some reasons to continue to see some firmness in economic activity moving forward," Abenoja said.   

Remolona meanwhile said he sees the BSP continuing to ease monetary policy this year. 

"We can't tell you how many cuts. But definitely more cuts this year," Remolona said, adding that the adjustments would come in "baby steps" of 25 basis points each. 

He added, however, that, “We have more meetings than the cuts we are thinking about.”

The central bank governor also said they see themselves completing the rate easing cycle in 2025.

“We're estimating the numbers for 2027 but we're not we're not thinking of monetary policy…as far forward as 2027,” he said.