THE Bangko Sentral ng Pilipinas (BSP) has “greater motivation” to cut back borrowing costs further, analysts said, with expectations of as much as 50 basis points (bps) value of rate cuts this yr.
“As we have a look at our gross domestic product (GDP) figures and inflation rates, we are able to see that there’s more of a greater motivation for the central bank to truly cut rates now,” Regina Capital Development Corp. Equity Analyst Alexandra G. Yatco said on Money Talks with Cathy Yang on One News.
In a report, Bank of America (BofA) Global Research said it expects a complete of fifty bps value of easing this yr.
“We currently see one 25-bp cut within the second quarter after which another within the fourth quarter, bringing the overnight borrowing rate to five.25% by end-2025,” it said.
“Central banks across ASEAN (Association of Southeast Asian Nations) have adopted a wait-and-watch approach, in search of periodic opportunities to ease monetary conditions to mitigate growing uncertainty, emanating from US trade policy, a gentle yet slow China, and falling inflation.”
Despite keeping the benchmark rate regular at 5.75% last month amid “global trade uncertainties,” BSP Governor Eli M. Remolona, Jr. said they’re still on an easing mode.
He signaled that a rate cut remains to be on the table on the Monetary Board’s next rate-setting meeting on April 10.
“With capital outflows dominating capital markets, central banks have stepped as much as inject liquidity each to domestic money markets and foreign exchange markets, while tactically cutting policy rates as and once they can,” BofA said.
“We expect this behavior to proceed for a while, especially since real rates remain high, growth is uninspiring, and currencies are under pressure.”
BofA said central banks within the region will look to chop rates given the chance, so long as this doesn’t disrupt domestic and external stability parameters
“Despite the meandering path central banks have chosen to take, the macro backdrop and our baseline forecasts still point towards broadly stable growth rates, low inflation, and stable fiscal positions,” it added.
BofA expects Philippine inflation to stay inside the central bank’s 2-4% goal band. To this point, headline inflation has averaged 2.5% in the primary two months.
“Most significantly, real rates remain high across all economies, giving space to chop rates and ease monetary conditions if needed,” it added.
Meanwhile, BofA said ASEAN banks are expected to “slowly diverge from the Fed.”
“As such, with significant uncertainty, we expect ASEAN central banks to maintain balancing between global aspects equivalent to US policy rates and the (US dollar index), and domestic growth and inflation backdrop.”
This might make the trail of monetary policy “more erratic and unsure, leading to increased policy divergence between the Fed and the ASEAN economies, contrary to previous business cycles.”
TARIFF CONCERNS
Meanwhile, BofA also flagged the potential impacts from retaliatory tariffs on the Philippines.
“The concerns around tariffs appear to be affecting the expansion side greater than the inflation front. Because the export demand falls or global trade slows, ASEAN economies may very well be at a greater risk of a growth slowdown than the danger of an instantaneous inflationary spiral.”
“Thus, economies equivalent to Philippines and Thailand where domestic demand has remained sub-par could face further headwinds on the external front requiring a more initiative-taking policy,” it added.
Reuters reported President Donald J. Trump’s increased tariffs on all US steel and aluminum imports took effect on Wednesday, stepping up a campaign to reorder global trade in favor of the US and drawing swift retaliation from Europe. (Related story “Global trade war looms as Trump’s metal tariffs kick in”).
“For the Philippines, the good thing about being a domestic-oriented economy and having a less binding relationship with the US provides it some respite, but tariffs on Philippine exports to the US, especially if geared toward electronics, could diminish its surplus with the US and worsen its overall trade deficit.”
The Philippines’ trade-in-goods deficit widened to $5.09 billion in January, the widest deficit in three months. — Luisa Maria Jacinta C. Jocson
