Analysts split on BSP easing path

Analysts are divided on the Philippine central bank’s easing trajectory for the rest of 2025, as an escalating conflict in the Middle East and oil price spike clouds the inflation outlook.

“We still see room for further policy easing to support economic momentum, and expect another rate cut of 25 basis points (bps) by the end of the year,” Moody’s Analytics economist Sarah Tan said in an e-mail.

“Policy easing will continue into 2026 as well. Monetary easing would support the domestic economy amid a complex external environment,” she added.

The Bangko Sentral ng Pilipinas (BSP) on Thursday cut the target reverse repurchase rate by 25 bps to 5.25% from 5.5% amid a moderating inflation outlook and weaker-than-expected first-quarter economic growth.

BSP Governor Eli M. Remolona, Jr. said on Friday that a rate cut in August was on the table depending on the data and a further escalation in the Middle East conflict.

“We could do another rate cut in August or we could pause and do the rate cut in October instead of August. That’s one possibility. But we’re looking at the data every day and we’re going to decide in August what the next move should be,” he said in an interview with CNBC.

The Monetary Board’s remaining policy meetings this year are scheduled for Aug. 28, Oct. 9, and Dec. 11.

Deutsche Bank Research also expects the BSP to cut by 25 bps in August.

“Our baseline for one more 25-bp rate cut in August remains, as we think that annual inflation is likely to stay near the lower end of BSP’s 2-4% target barring an escalation in the Middle East conflict,” it said in a note.

Ms. Tan said the BSP’s policy outlook has turned “slightly gloomier” due to the escalating conflict in the Middle East and uncertainties arising from the Trump administration’s trade policies.

“Political volatility across key oil-producing nations leaves the market vulnerable to sudden shocks. This could fuel higher global oil prices, which is concerning for the Philippines due to its heavy reliance on imported oil. This could add upward price pressures in the domestic economy and risks depreciation of the peso,” she said.

However, Moody’s Analytics does not see inflation breaching the central bank’s 2-4% target this year. The BSP expects inflation to average 1.6% this year, 3.4% in 2026 and 3.3% in 2027.

On the other hand, ANZ Research and Nomura Global Markets Research said the BSP may deliver two more rate cuts this year.

“Given the BSP’s inflation forecast of 1.6% for 2025, a terminal rate of 5% would imply that real rate would still remain elevated at 3.4%. Consequently, we think the BSP will have to cut rates two more times by 25 bps each in Q3 and Q4 2025 bringing the terminal rate to 4.75%,” ANZ Research said.

Nomura Global Markets Research said it expects two 25-bp cuts at the BSP’s August and October meetings “mainly supported by the low inflation outturns in coming months.”

However, the main risk to its view is the timing of these next cuts, Nomura said.

“An escalation in the Middle East conflict that is accompanied by further increases in oil prices could keep BSP from cutting and instead prompt it to leave the policy rate unchanged in the near term,” it said.

“The BSP also highlighted in the policy statement today that the Monetary Board will continue to assess the impact of prior monetary policy adjustments, which in our view suggests BSP could pause, if the domestic economy shows signs of improvement in the short run,” Nomura added.

Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said in a June 19 report that while a rate cut was still possible this year, as the central bank should remain cautious as an overly aggressive easing cycle could leave the economy vulnerable to abrupt rate hikes by the US Federal Reserve.

He added the Monetary Board’s easing cycle could be disrupted if the conflict in the Middle East escalates further.

“Containing inflation should remain the top priority, since high inflation has been the main reason for the slowdown in GDP growth — more so than the current level of interest rates. Keeping inflation stable, even without additional cuts, will likely boost the economy. A resurgence in inflation, even with the rate cuts, could hold back growth again,” Mr. Neri said.

Pause

Meanwhile, some analysts said the BSP may pause its easing cycle for the rest of the year.

“Developments in commodity markets, global demand and trade tensions are at this point the biggest risk factors for inflation and therefore the BSP’s easing path,” Fitch Ratings’ Asia-Pacific Sovereigns Director Krisjanis Krustins said in an e-mail.

Mr. Krustins said he does not expect any more rate cuts by the BSP this year. He said the BSP will likely resume easing with a 25-bp cut in 2026, bringing the rate to 5%.

“This would imply a relatively small differential between the Philippines and the US in terms of policy rates, compared to history,” he said.

Mr. Remolona on Friday said the interest rate differential between the Fed and the BSP could narrow to 50 bps.

Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the BSP will likely pause at its Aug. 28 meeting as the central bank will first assess the effect of its cumulative rate cuts in addition to the reduction of banks’ reserved requirement ratio (RRR).

“We reckon this evaluation will focus on transmission lags and the current high real interest rate environment to determine whether further easing is warranted,” he said.

The BSP on March 28 cut the RRR of universal and commercial banks and nonbank financial institutions with quasi-banking functions by 200 bps to 5%. The RRR for digital banks was also lowered by 150 bps to 2.5%, while the ratio for thrift lenders was cut by 100 bps to 0%.

Mr. Asuncion said the BSP could cut the target reverse repurchase rate up to 3% to 3.5% before pausing, aligning with pre-pandemic levels and the central bank’s inflation target. — A.M.C. Sy