Two more rate cuts likely before yearend

THE Bangko Sentral ng Pilipinas (BSP) still has room to deliver two 25-basis point (bps) interest rate cuts before the end of the year, Finance Secretary Ralph Recto said, despite global headwinds and uncertainties over US Federal Reserve policy.

Recto, who is a member of the BSP’s policymaking Monetary Board, told reporters last week that the central bank had already indicated its intention to continue lowering interest rates, with the cuts to be possibly spread over this year’s remaining policy meetings.

“I think the BSP is clear that we expect a [further] 50-basis point rate cut all the way till the end of the year — 25 [bps], 25 [bps],” he said.

“As of today’s data, I think inflation is on its way down. We just don’t know what happens in the US right now, what’s going to happen there. We’ll keep an eye on that as well.”

The US central bank’s future policy moves also remain a major external consideration, the Finance chief said. While US inflation has risen slightly, dampening expectations of a Fed rate cut at the end of this month, he noted that political dynamics — particularly under President Donald Trump — could still play a role.

“Trump wants to change the Fed, right? He wants a rate cut. That’s what happens there,” the Finance chief said. “But for us, as we’re looking at our own inflation data, so far that looks good.”

Asked if the BSP could proceed with cuts even if the Fed keeps its rates elevated, Recto replied that local monetary authorities had “room to cut” even though this could depend “on what happens in the US as well. But I would assume that we’re okay for two rate cuts.

”The Fed has so far yet to adjust interest rates since the start of 2025 with US inflation still above target and given uncertainties over the impact of US President Donald Trump’s trade policies.

It has signaled that borrowing costs will still be lowered this year, possibly twice, but most analysts expect cuts to only start in September and not during its next policy meeting on July 29-30.

The Monetary Board, meanwhile, has cut its benchmark rate twice already since the start of 2025 as domestic inflation has already undershot the target range and with economic growth sluggish.

Its next rate-setting meeting will be on Aug. 28.”I’m sure we’ll discuss that,” Recto said of a possible rate cut next month. “I’m in favor [of] two for the year — 25 and 25.”

BSP Governor Eli Remolona has also said that the central bank could reduce its policy rate two more times this year. This would bring the benchmark rate down to 4.75 percent from the current 5.25 percent.

Headline inflation came in at just 1.4 percent in June, slightly higher than May’s 1.3 percent but still below market expectations and the BSP’s 2.0- to 4.0-percent target. It marked the fourth straight month that inflation remained below the central bank’s goal.

July price data due Aug. 5, along with preliminary second-quarter economic growth figures scheduled to be released on Aug. 8, will factor in the Monetary Board’s policy decision late next month.