By Katherine K. Chan
THE BANGKO Sentral ng Pilipinas (BSP) is widely expected to cut rates for a 3rd straight meeting on Thursday amid a continued downtrend in inflation and a slowdown in economic growth, analysts said.
A BusinessWorld poll conducted last week showed that every one 20 analysts surveyed expect the Monetary Board to chop the goal reverse repurchase rate by 25 basis points (bps) at its policy meeting on Aug. 28.
If realized, this may bring the benchmark rate to five% from the present 5.25%.
The central bank has up to now lowered borrowing costs by a complete of 125 bps because it began its easing cycle in August last 12 months. It delivered two 25-bp cuts at each of its meetings in May and June.
“Inflation is currently trailing well below the BSP’s 2-4% goal band, easing to as little as 0.9% 12 months on 12 months in July. Given the performance of inflation up to now, the BSP, we imagine, has the runway to quicken and, most especially, deepen its easing cycle,” HSBC economist for ASEAN (Association of Southeast Asian Nations) Aris D. Dacanay said.
Inflation fell to 0.9% in July, the bottom in nearly six years, or for the reason that 0.6% print posted in October 2019. It also marked the fifth straight month that inflation settled below the central bank’s 2-4% goal range.
“The first catalyst for this expected policy shift stems from subdued inflationary pressures,” Maybank Economist Azril Rosli said. “We imagine this persistent undershooting of the inflation goal provides the BSP some room of policy space to support economic growth without compromising price stability,” he added.
For the primary seven months of the 12 months, inflation averaged 1.7%, a tad higher than the BSP’s 1.6% full-year forecast.
“Softer price growth has provided relief to each consumers and businesses, who had contended with elevated inflation from 2022 through mid-2024,” Moody’s Analytics economist Sarah Tan said in an e-mail.
Deutsche Bank Research said inflation is more likely to stay below the BSP’s 2-4% goal until early 2026.
“President Marcos’ order to suspend rice imports in September to October this 12 months could add some upsides to inflation, however it is unlikely to cause overshoots in inflation for a sustained period, barring any extensions to the suspension or increases in tariffs on rice imports,” it said.
Earlier this month, President Ferdinand R. Marcos, Jr. ordered a halt on rice imports for 60 days starting Sept. 1 to supply relief for farmers.
“While CPI (consumer price index) readings should speed up from here, contained domestic rice prices and a reversal in oil should keep inflation subdued,” ING Bank said in a report.
SLOWING GROWTH
Slowing economic growth may even be a consider the Monetary Board’s decision to proceed its easing cycle, analysts said.
“Economic growth continues to be struggling to regain positive momentum, as we’ve all seen on this month’s Q2 GDP (gross domestic product) release and inflation stays comfortably below the BSP’s goal range, a situation that we expect will persist until the tip of 2025, providing the Board with ample room for more easing,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said in an e-mail.
Within the April-to-June period, GDP expanded by an annual 5.5%, picking up from 5.4% in the primary quarter but slower than the 6.5% growth in the second quarter of 2024.
Security Bank Chief Economist Angelo B. Taningco said the Monetary Board will likely have a look at the “must speed up GDP growth,” after first half growth was below the federal government’s goal for the 12 months.
For the primary half, the Philippines’ GDP growth averaged 5.4%, slower than the 6.2% a 12 months ago. This was barely below the federal government’s 5.5% to six.5% growth goal range for this 12 months.
Matt Reinielle M. Erece, an economist at Oikonomia Advisory and Research, Inc., said in a Viber message that “underwhelming” economic growth and below-target inflation will prompt the BSP to proceed easing to spice up consumer spending and business expansion.
“A more accommodative financial environment subsequently is seen to assist stimulate consumption and investments especially, as expensive imports and weaker export demand are expected to exert some downward pressure on growth,” Marian Monette Q. Florendo, a research and business analytics officer at Metrobank, said.
Difficult headwinds created by the US tariff rates are also expected to weigh on Philippine growth momentum.
“With the economy still contending with external risks equivalent to higher US tariffs and global policy uncertainties, the BSP may consider a more accommodative policy stance to lend more support to the economy and help meet the federal government’s growth targets,” Chinabank Research said.
Earlier this month, the US began imposing a 19% tariff on Philippine goods.
“Lower policy rates will help support investment and credit amid the incoming slowdown in global trade. To date, credit, investment, and consumption, though improving, aren’t growing as fast because it was prior to the pandemic,” Mr. Dacanay said.
Chinabank Research said the central bank can also consider the Federal Reserve’s policy direction.
“The BSP will likely take into consideration the developments within the Fed’s monetary policy, given its influence on the USD-PHP exchange rate and its potential subsequent impact on domestic inflation,” it said.
Last week, Federal Reserve Chair Jerome H. Powell signaled a possible rate cut on the US central bank’s meeting next month amid persistent inflation and employment woes.
Mr. Dacanay said that a 25-bp cut would mean narrowing the spread between the BSP rate and the upper sure of the Federal Funds Rate.
“If the BSP does loosen the monetary reins (this) week, the spread between the BSP rate and the upper-bound rate of the Fed rate would chop to as little as 50 bps,” he said. “That may be the narrowest policy rate differential seen for the reason that BSP shifted to an inflation targeting framework back in 2002.”
The upper sure of the Federal Funds Rate goal range currently stands at 4.5%. This rate, set by the Federal Open Market Committee, is the rate of interest that industrial banks use when lending excess reserves to one another.
Ms. Florendo said the present peso level provides the central bank with leeway to narrow the differential.
“Current USD/PHP level, which stays throughout the P56-to-P57 level, signals that peso has space to soak up a narrower IRD (rate of interest differential). Furthermore, a weak dollar environment is anticipated to partially offset its impact,” Ms. Florendo said.
FURTHER CUTS
Analysts said they expect the BSP to proceed easing within the fourth quarter. After the Aug. 28 review, the Monetary Board is scheduled to fulfill again on Oct. 9 and Dec. 11.
Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said he expects the subsequent rate cut to occur as early as Oct. 9, “assuming inflation stays subdued, and growth continues to underperform.”
Mr. Dacanay said he sees the BSP lowering the benchmark rate by one other 25 bps to 4.75% within the fourth quarter, and one other 25 bps to 4.5% in the primary quarter of 2026 “subject to rice inflation being manageable.”
Metrobank Chief Economist Nicholas Antonio T. Mapa said the BSP will remain data dependent but could cut rates again in December.
Bank of the Philippine Islands Chief Economist Emilio S. Neri, Jr. said the BSP “seems determined” to chop again within the fourth quarter and “some more in 2026.”
“We predict the outlook stays too uncertain that they might find yourself taking back a few of those cuts next 12 months or in 2027,” he said.
Philippine National Bank economist Alvin Joseph A. Arogo said it’s “more prudent” for the BSP to pause in October and December because of upward risks to 2026 inflation and uncertainty over the Fed’s rate cuts.
University of Asia and the Pacific economist Victor A. Abola said the central bank must be as aggressive in lowering rates as they were with the hikes in 2022.
“Be more consistent and do at the least 50 bps now and one other 25 bps after a month. The economy must rebound from the extraordinarily high nominal and real rates of interest,” Mr. Abola said.