Another 25-bps cut expected

MONETARY authorities will likely cut key interest rates by another 25 basis points (bps) this Thursday given subdued economic growth and within-target inflation, analysts said.

The Bangko Sentral ng Pilipinas’ (BSP) policymaking Monetary Board reduced rates three times last year — in August, October and December — for a total of 75 bps as inflation settled within the medium-term goal of 2.0- to 4.0 percent.

With economic growth having fallen below target for a second straight year in 2024, 10 of the 11 analysts polled by The Manila Times said that another 25-bps cut on Feb. 13 was all but assured.

‘Too soon to deliver’

Moody’s Analytics economist Sarah Tan was the exception, predicting a pause as “it seems too soon to deliver another rate cut given uncertainties in the global climate.”

“[The] BSP will be prudent in monitoring global developments that could reinflate inflation and weaken the strength of the peso,” she added.

“Across 2025, we expect monetary policy easing to continue but at a more moderate pace. We’re looking at two quarter-point rate cuts by December, with the first coming through in the second quarter.”

Rate cut expectations have moderated given uncertainties over the impact of higher US tariffs on prices. The US Federal Reserve, which cut by a total of 100 bps, paused during its first 2025 policy meeting last month.

The BSP, which just before the end of 2024 had been forecast to cut by 100 bps this year, is now seen easing by just 50 bps. At the start of this month, central bank Governor Eli Remolona Jr. said that cutting by 75 bps in 2025 could be “too much.”

After the release of latest inflation data last week, which showed consumer price growth unchanged at 2.9 percent from December, the BSP said it would maintain a “measured approach” to policy easing to “ensure price stability conducive to sustainable economic growth and employment.”

Sufficient reasons

Pantheon Macroeconomics chief emerging economist Miguel Chanco, on the other hand, said that with fourth-quarter economic growth having hit just 5.2 percent and with no significant risk of inflation breaching target, the BSP was more likely to keep cutting interest rates.

Rizal Commercial Banking Corp. chief economist Michael Ricafort and Philippine National Bank economist Alvin Arogo also said that subdued economic growth and steady inflation would be sufficient reasons for a quarter-point cut on Thursday.

Chinabank Research echoed this, noting that generally mild and manageable price pressures supported expectations that inflation would remain within the target range moving forward.

“The country’s subdued economic performance for both the fourth quarter and full-year 2024 likewise supports the case for less restrictive monetary policy to help meet the government’s 6-8 percent target for this year,” it added.

Gross domestic product growth was 5.6 percent last year, below the 6.0- to 6.5-percent goal. It was slightly higher than 2023’s 5.5 percent, which also fell below the 6.0- to 7.0-percent target.

ANZ Research strategist Jennifer Kusuma said the BSP would implement a 25-bps reduction to support domestic demand and said that a total of 75 bps was likely for 2025.

‘Not the magic bullet’

Union Bank of the Philippines chief economist Ruben Carlo Asuncion said that with inflation within target in 2024 and with a stable outlook for this year, the BSP had room to cut rates, especially after growth remained weak in the fourth quarter.

“While a quarter-point rate cut is not the magic bullet that can slay macro risks, the BSP’s sustained rate action contributes to lower costs of funding and doing business while sowing the seeds for investment-driven growth that can help create jobs and incomes,” he added.

“Front-loading BSP Gov. Remolona’s preference for a 50-bps rate cut this year with the Fed on hold would be macro-appropriate, although this would be at the price of a weaker PHP (Philippine peso).”

HSBC Global Research economist Aris Dacanay, who also expects a rate cut this week, said the BSP needed to be mindful of the Fed’s moves, more so with tariff risks complicating its easing cycle of the latter.

“HSBC Economics recently changed its Fed policy rate forecast where it now expects a more gradual pace of rate cuts,” he said.

“In the same vein, we change our policy rate forecasts for the BSP. Although we continue to expect a total of 75bp worth of rate cuts for 2025, we expect the BSP’s easing cycle to be more gradual,” Dacanay added.

Peso stability

Meanwhile, Bank of the Philippine Islands senior economist Emilio Neri said that aside from the slower-than-expected growth last quarter, the recent stability of the peso could also provide the BSP with more room to consider a rate cut.

“The currency has strengthened in recent trading sessions following the US government’s decision to postpone its tariffs against Canada and Mexico. While a rate cut could exert pressure on the peso, improving market sentiment may mitigate this,” he said.

Neri said the BSP may tolerate a higher exchange rate as long as inflation stayed within target, and a weaker peso could help the economy by increasing the earnings of exporters and overseas Filipino worker households.

“Although a rate cut remains on the table, we believe the extent of easing this year will be limited,” he added.

Emmanuel Lopez from the University of Santo Tomas Graduate School also said that a stable local currency would prompt continued rate cuts.

Citi economist Nalin Chutchotitham, meanwhile, said that the real policy rate still appears fairly tight by historical standards.

“Aside from the general elections in May, we think that BSP could pause in April to reassess overall inflation risks, which may come from the expected rise of water and electricity rates during the year,” Chutchotitham said.

“We continue to expect the next 25bp of rate cuts in June and August, although the 2H25 rate cut may still be dependent on several outcomes later this year, including, in our view, the global economic momentum, the Fed’s monetary easing.”

The Monetary Board’s next rate-setting meeting this year will be on April 3. It is scheduled to meet four more times after that, on June 19, Aug. 28, Oct. 9 and Dec. 11.