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Two more rate cuts are likely in the cards this year, thanks to a benign inflation environment that could allow the Bangko Sentral ng Pilipinas (BSP) to support the economy amid global uncertainties, analysts said.
In a commentary, Aris Dacanay, economist at HSBC Global Research, said the BSP could ease two more times in alternate meetings this year and employ a “very cautious approach” given the highly volatile global trade environment.
“That being said, we continue to expect the BSP to cut its policy rate by 25bp (basis points) in August, and by another 25 bp in December, thus, bringing the policy rate to 5 percent by year-end,” Dacanay wrote.
“This implies that the BSP will cut in alternate rate-setting meetings (i.e. no rate cuts in June and October),” he added.
But the HSBC economist floated three scenarios that may prompt the central bank to ease at each of its last four meetings for 2025.
First, if the global growth outlook deteriorates further due to US tariffs; two, if the real policy rates between the US Federal Reserve and the BSP widen; and three, if the peso strengthens as the relatively milder US tariff on Filipino goods makes the Philippines more attractive to foreign fund inflows.
“In fact, we think the BSP has swung into dovishness,” Dacanay said.
The central bank last week resumed its easing cycle with a quarter point cut to the policy rate.
The decision—which was made in the wake of US President Donald Trump’s flip-flopping on his “Liberation Day” tariffs—brought the overnight rate to 5.5 percent, with BSP Governor Eli Remolona Jr. hinting at “further cuts” this year.
Within target
While the whole world was worried about the impact of heightened trade protectionism on economic growth, Remolona said the Philippines was experiencing something that many countries do not: tame inflation.
The benign price growth, in turn, afforded the central bank enough room to cut rates again, he added.
Latest data showed inflation had softened to a near five-year low of 1.8 percent in March, better than consensus following slower hikes in food and transport costs.
And price growth would likely stay within the 2 to 4 percent official target range this year. The central bank even lowered its worst-case inflation forecast for 2025 to 2.3 percent, from 3.5 percent previously.
Separately, analysts at ANZ Research also see the policy rate going down to 5 percent this year given the improvement in the inflation outlook and the downside risks to growth.
“We think the BSP will cut rates in both Q3 and Q4 2025 by 25 bp in each quarter,” ANZ Research said. INQ
