THE BANGKO SENTRAL ng Pilipinas (BSP) could further lower rates of interest this 12 months to bolster economic growth amid benign inflation and global trade uncertainties, MUFG Global Markets Research said.
“Growing trade headwinds will keep many regional central banks in a policy easing cycle to support growth, amid contained inflation,” it said in a recent report.
“We expect BSP to chop the policy rate by one other 50 bps (basis points) in the remaining of this 12 months, given rapidly moderating inflation.”
If realized, this is able to bring the benchmark rate to 4.75% by end-2025, the bottom in nearly three years.
The central bank has lowered borrowing costs by a complete of 125 bps because it began its rate-cutting cycle in August last 12 months.
The Monetary Board’s next policy review is about for Aug. 28.
MUFG also noted the newest signals from BSP Governor Eli M. Remolona, Jr., who had said there may be room for 2 more rate cuts this 12 months as a consequence of manageable inflation.
MUFG expects headline inflation to average 1.8% this 12 months, barely higher than the central bank’s projection of 1.6%.
Headline inflation picked as much as 1.4% in June from 1.3% in May but slowed from 3.7% a 12 months ago. This brought the six-month average inflation to 1.8%.
Nevertheless, MUFG warned that the BSP “might be constrained in an oil price shock scenario.”
In a separate report, MUFG said it expects a “dovish bias” from the BSP as a consequence of “risks tilted barely to more cuts” amid the tariffs.
The tariff rate was a downside surprise for MUFG’s foreign exchange and macroeconomic forecasts, MUFG said, because it expected the Philippines to strike a greater trade cope with the US.
“We were implicitly expecting a trade deal between the US and the Philippines with a small bilateral trade deficit between the 2 countries,” it said.
The US set a 19% tariff on Philippine goods, following a gathering between US President Donald J. Trump and President Ferdinand R. Marcos, Jr. last week. This can take effect on Aug. 1.
“Over the medium term, with tariff rates closer to twenty%, the marginal incentive to shift some manufacturing to the Philippines also becomes less compelling, at the same time as we highlight that we weren’t assuming a considerable manufacturing shift for the Philippines as our base case to start with.”
“In other words, relatives matter, but so do the chance costs for the Philippines,” it added.
The US is a top export destination for Philippine goods, accounting for around 16% of total exports within the five-month period, primarily semiconductors and electronic products.
“We also note that the US is sort of a vital export marketplace for the Philippines in lots of sectors including leather, furniture, toys and sports equipment, and textiles, but conversely, the Philippines is just not a dominant supplier for the US across different product categories.”
“Put in another way, if tariff rates were to rise meaningfully higher relative to other countries, the inducement for US importers to substitute across countries from the Philippines may begin to weigh on exports.”
Meanwhile, MUFG expects the peso to settle at P56 against the dollar within the third quarter and P55.5 within the fourth quarter.
“Beyond tariffs, the positive aspects we highlighted previously including rising foreign direct investment approvals, manageable inflation and domestic rice prices, coupled with forecast of further US dollar weakness are still supportive of the Philippines peso.” — Luisa Maria Jacinta C. Jocson