BSP may slash rates by 75 bps in 2025 — Recto

The Bangko Sentral ng Pilipinas (BSP) could cut benchmark interest rates by 75 basis points (bps) in 2025, Finance Secretary Ralph G. Recto said.

Mr. Recto, who previously projected 100 bps of cuts in 2025, told reporters the pace of easing will depend on various factors, such as inflation and the US Federal Reserve’s next moves.

“It depends also on what happens, what the Fed does. So, we have to wait for the inflation numbers, wait for what the Fed does, I suppose. But more or less, my expectation is 75 bps,” he said.

BSP Governor Eli M. Remolona, Jr. had earlier signaled that the Monetary Board could deliver rate cuts in the 100-bp range next year.

On Wednesday, the US Federal Reserve was expected to lower rates by 25 bps, which would bring the policy rate to the 4.25%-4.5% range. However, the pace of the Fed’s easing cycle remains uncertain as US President-elect Donald J. Trump assumes office in January.

Philippine headline inflation stood at 2.5% in November, bringing the 11-month average to 3.2%. This is still well within the BSP’s 2-4% target band.

Mr. Recto, who is also a member of the Monetary Board, said there is a “great possibility” that the central bank would deliver a third straight 25-bp cut at its final policy meeting for the year today (Dec. 19).

“There is a great possibility, [and] probability. I agree with the market consensus of a 25-bp (decrease),” Mr. Recto said.

A BusinessWorld poll conducted last week showed that 13 out of 16 analysts expect the Monetary Board to reduce the target reverse repurchase rate by 25 bps at its meeting today.

If realized, this would bring the benchmark rate to 5.75% from the current 6%, or a total of 75 bps worth of cuts by the end of 2024.

If the BSP delivers another 75 bps worth of cuts next year, it would bring the key rate to 5% in 2025.

The central bank began its easing cycle in August with a 25-bp cut. It delivered another 25-bp reduction in October.

In a separate report, Capital Economics said it sees up to 100 bps worth of rate cuts in 2025.

“With growth set to moderate and inflation likely to remain low, we expect a further 100 bps of cuts in 2025. This will take the policy rate to 4.75% at the end of 2025,” it said in a report released on Dec. 13.

Capital Economics said the strength of gross domestic product (GDP) growth is “unlikely to last.”

Economic managers earlier this month revised their GDP target to 6-6.5% this year from 6-7% previously after weak third-quarter growth.

The economy grew by an annual 5.2% in the July-to-September period, the weakest growth in five quarters or since the 4.3% expansion in the second quarter of 2023.

For the first nine months of the year, Philippine GDP growth averaged 5.8%, slower than the 6% print a year ago.

“Consumption is likely to be boosted by the drop in inflation and further cuts to interest rates, but we doubt the pace of consumption growth in Q3 is sustainable. What’s more, growth in remittances and exports will slow, amid weaker global growth,” Capital Economics said.

It expects inflation to remain low in the next quarters “due to a combination of weaker economic growth and a decline in food inflation.”

The central bank expects inflation to settle at 3.1% this year. — A.R.A. Inosante