By Luisa Maria Jacinta C. Jocson, Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) is anticipated to chop rates for a fourth straight meeting on Thursday, analysts said, amid within-target inflation and weaker-than-expected gross domestic product (GDP).
A BusinessWorld poll conducted last week showed that 19 out of 20 analysts expect the Monetary Board to scale back the goal reverse repurchase rate by 25 basis points (bps) at its policy review on Feb. 13.
If realized, this may bring the benchmark rate to five.5% from the present 5.75%.
This could also mark the fourth straight meeting the BSP cut rates because it began its easing cycle in August.
In 2024, the central bank slashed borrowing costs by a complete of 75 bps.
However, one analyst expects the central bank to maintain rates of interest regular on the meeting.
“We expect the BSP to chop the policy rate by 25 bps to five.5% at its Monetary Board meeting,” Security Bank Corp. Vice-President and Research Division Head Angelo B. Taningco said.
Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said monetary policy normalization is “removed from over” amid elevated rates of interest.
“I’m expecting the Monetary Board to chop further this week, by one other 25 bps, especially with fourth-quarter GDP coming in softer than expectations and with inflation remaining firmly inside the BSP’s goal range,” he said.
Citi Economist for the Philippines Nalin Chutchotitham said the BSP is prone to deliver a 25-bp cut on Thursday after weaker-than-expected 2024 growth and a moderate inflation outlook.
BSP Governor Eli M. Remolona, Jr. earlier said a rate cut remains to be “on the table” for this week.
“The central bank might use the slower-than-expected growth last quarter as the first justification for the cut, together with a stable inflation environment that enables the central bank to focus more on boosting the economy,” Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said.
Chinabank Research said price pressures have remained “generally mild and manageable.”
“Headline inflation staying stable at 2.9% in January, and core inflation even easing barely, might be a key input to the Monetary Board,” Nomura Global Markets Research analyst Euben Paracuelles said.
Headline inflation remained regular at 2.9% in January, inside the central bank’s 2-4% goal band.
HSBC economist for ASEAN Aris D. Dacanay said inflation is “not a lot of a priority” as the newest consumer price index outturn was well-within goal.
WEAK GROWTH
Meanwhile, analysts noted that the newest economic output data could prompt further policy easing.
“Having attained its inflation objective in 2024 alongside a target-consistent inflation outlook this yr, the BSP has room to trim its policy rate following one other disappointing GDP growth estimate,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said.
Patrick M. Ella, economist at Sun Life Investment Management and Trust Corp. said that weak GDP is a “more pressing issue” for now so the BSP “must support growth from the monetary side.”
“The country’s subdued economic performance for each the fourth quarter and full-year 2024 likewise supports the case for less restrictive monetary policy to assist meet the federal government’s 6-8% goal for this yr,” Chinabank said.
The Philippines’ GDP grew by a slower-than-anticipated 5.2% within the fourth quarter. This brought full-year 2024 growth to five.6%, wanting the federal government’s 6-6.5% goal.
“Softer GDP data for the second straight quarter and the slowest in 1.5 years or for the reason that second quarter of 2023 would further support local policy rate cuts,” Rizal Industrial Banking Corp. Chief Economist Michael L. Ricafort said.
The BSP chief earlier said the country is growing at a “little bit below capability.” If the output gap widens further, this may call for more easing, Mr. Remolona added.
“The BSP’s sustained rate motion contributes to lower costs of funding and doing business while sowing the seeds for investment-driven growth that might help create jobs and incomes,” Mr. Asuncion said.
Mr. Dacanay said loosening monetary policy will “help raise demand for credit and support growth.”
“That is a vital market signal to spice up business activity and spending after the disappointing GDP growth report for the last quarter of 2024,” Oikonomia Advisory & Research, Inc. economist Reinielle Matt Erece said.
PESO
Meanwhile, the peso’s recent appreciation could also allow the BSP to proceed on its easing cycle.
“The recent stability of the peso could also provide the BSP with more room to think about a rate cut,” Mr. Neri said.
“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.”
The peso closed at P58.03 per dollar on Friday, strengthening by 15 centavos from its P58.18 finish on Thursday. This was its strongest close in greater than a month or since its P57.91-per-dollar finish on Jan. 2.
Week on week, the peso likewise rose by 33.5 centavos from its P58.365 finish on Jan. 31.
“Furthermore, the BSP may be open also to the next exchange rate so long as inflation stays inside goal. A weaker peso could also profit the economy by boosting the purchasing power of exporters and OFW households,” Mr. Neri added.
Meanwhile, Mr. Dacanay said there may be also room for the BSP to narrow its rate of interest differential with the US Federal Reserve.
“Currently at 125 bps, history has shown us that the spread between the BSP and the upper-end range of the Fed rate may be as narrow as 100 bps before stoking financial jitters,” he said.
Reuters reported Federal Reserve officials on Friday said the US job market is solid and noted the dearth of clarity over how President Donald J. Trump’s policies will affect economic growth and still-elevated inflation, underscoring their no-rush approach to rate of interest cuts.
The Fed kept its policy rate regular last month, citing economic uncertainties.
“We predict the BSP could still proceed with a 25-bp cut because the resulting rate of interest differential, at 100 bps, stays at a cushty level and would likely not risk a big depreciation of the peso against the US dollar,” Chinabank Research added.
However, Moody’s Analytics economist Sarah Tan said the BSP could keep rates on hold on Thursday, noting it seems “too soon” to chop rates amid trade war jitters.
“The BSP might be prudent in monitoring global developments that would reinflate inflation and weaken the strength of the peso,” she added.
CAUTIOUS EASING
Moving forward, analysts said the central bank will likely remain cautious and will deliver fewer than expected rate cuts this yr.
“The BSP will likely maintain its cautious messaging, given persisting inflation risks and increased global uncertainties,” Chinabank Research said.
The central bank earlier warned that the risks to the inflation outlook remain tilted to the upside for this yr and 2026.
“Across 2025, we expect monetary policy easing to proceed but at a more moderate pace,” Ms. Tan said.
Mr. Remolona had signaled the potential of cutting by a complete of fifty bps this yr, saying that 75 bps or 100 bps could also be a bit “an excessive amount of.”
“Although a rate cut stays on the table, we consider the extent of easing this yr might be limited,” Mr. Neri said.
“The sizable current account deficit of the economy makes it more vulnerable to external shocks equivalent to global trade tensions. A narrower rate of interest differential could also drive portfolio outflows as investors seek higher returns elsewhere,” he added.
Mr. Neri expects a complete of fifty bps price of rate reductions this yr.
“Front-loading Mr. Remolona’s preference for a 50-bp rate cut this yr with the Ate up hold can be macro-appropriate although this may be at the value of a weaker peso,” Mr. Asuncion said.
However, Mr. Ella expects the central bank to deliver two rate cuts totaling 50 bps in the primary half, keep rates regular within the third quarter before delivering one other 25-bp cut within the fourth quarter.
