BSP seen cutting just twice this year

THE Bangko Sentral ng Pilipinas (BSP) could markedly slow the pace of easing this year to just two rate cuts in the first half given inflationary pressures and possible currency volatility, Bank of America (BofA) said on Wednesday.

“We now think the BSP will cut its policy rate only twice in 1H25 (in Feb[ruary and] April), instead of thrice as we had previously assumed,” BofA said in a report where it also lowered its growth estimate for the fourth quarter of last year to 5.7 percent from 5.9 percent.

The BSP, which reduced its policy rate by 75 basis points (bps) to 5.75 percent last year, was earlier expected to cut by as much as 100 bps in 2025 given a benign inflation outlook. Rising global concerns following protectionist threats by US President-elect Donald Trump, however, led analysts to trim their outlooks to 75 bps as last year ended.

The BSP cuts lagged those of the US Federal Reserve (Fed), which lowered interest rates by a total of 100 bps in 2024. The US central bank, which in December expressed concern over the inflationary impact of likely Trump policies and indicated that fewer cuts could be ordered in 2025, is now expected to pause during its first meeting on Jan. 28-29.

Some analysts said it could even end its easing cycle as inflation remains above target and as US economic growth remains strong.

BofA said it now expected the Fed “to remain on hold.”

The BSP, it noted, is “rightly focused” on managing inflation and growth. Inflation risks, it added, were increasing on the upside due to sticky food prices, volatile crude oil prices and a weaker peso.

Consumer price growth was forecast to average 3.3 percent this year, slightly higher than 2024’s 3.2 percent, and could approach 4.0 percent before the end of the year — limiting the central bank’s ability to continue easing.

A 50-bp cut this year could lead to further currency weakness, pushing the peso-dollar rate past its record P59:$1 low to P62 by the middle of 2025 before ending the year at P61 to the greenback.

The peso, which hit the record P59:$1 in October 2022 after the BSP failed to match aggressive rate hikes by the Fed to combat inflation, again hit that mark three times late last year amid worries over Trump’s policy plans and mixed signals regarding the direction of policy rates.

BSP Governor Eli Remolona Jr. in December said that 100 bps in cuts this year would likely be “too much, but zero would also be too little.” Last week, he said that monetary authorities still had room to lower interest rates and that it was “too soon to declare victory” against inflation.

As for economic growth, BofA said that constraints in government spending likely blunted the fourth-quarter expansion and limited full-year 2024 growth to 5.6 percent, below the government’s 6.0- to 6.5-percent target and marginally higher than 2023’s 5.5 percent.

Preliminary fourth quarter and full-year growth data will be released on Jan. 30.