On 15 August 2024, the Bangko Sentral ng Pilipinas (BSP) reduced its policy interest rate by 25 basis points, from 6.50% to 6.25%. This marks the BSP's first rate cut following an aggressive monetary tightening cycle that saw rates surge by 450 basis points from 2.00% in May 2022 to 6.50% in October 2023.

The BSP's decision comes amid a slight uptick in inflation, which reached 4.4% year-on-year in July 2024, up from 3.7% in June 2024. Despite this, the BSP maintains that inflation expectations are well-anchored and on a target-consistent path. The central bank has raised its risk-adjusted inflation forecast for 2024 to 3.3%, up from 3.1% in June 2024, while lowering its forecast for 2025 to 2.9% from 3.1%.

Executive Order 62, effective 6 July 2024, has cut the rice import tariff from 35% to 15%, extending lower rates on other agricultural imports such as pork, poultry, and corn. This move is expected to ease food price pressures, contributing to a more stable inflation outlook.

The BSP's revised inflation forecasts reflect a balance of risks, with downside risks for 2024 and 2025 primarily due to reduced import tariffs, but with potential upside risks from higher electricity rates and geopolitical tensions affecting oil and food prices. The central bank's Monetary Board anticipates that these factors, along with the implementation of Administrative Order 20, which removes non-tariff barriers on agricultural imports, will help ease price pressures in the coming months.

Despite the current tight financial conditions, the BSP notes that domestic demand remains firm. GDP growth for the second quarter of 2024 was solid, and the unemployment rate has declined. Robust public investment, coupled with easing price pressures and strong employment conditions, is expected to support continued economic activity.