BSP to cut rates by 25 bps — poll

THE BANGKO SENTRAL ng Pilipinas (BSP) is expected to cut rates by 25 basis points (bps) this week amid easing price pressures and slowing economic growth.

A BusinessWorld poll conducted last week showed that 15 out of 16 analysts expect the Monetary Board to reduce the target reverse repurchase rate by 25 bps at its policy meeting on June 19.

If realized, this would bring the benchmark rate to 5.25% from the current 5.5%.

Only one analyst, Ateneo Center for Economic Research and Development Director Ser Percival K. Peña-Reyes, expects the BSP to keep rates unchanged.

Analysts said the inflation downtrend and weaker-than-expected growth in the first quarter gives the central bank room to continue its easing cycle.

“A lower-than-expected Philippine inflation trajectory, a stronger local currency, high real rates, and uncertainty over global growth reinforce our view that monetary policy easing is far from over,” ING Bank said.

HSBC economist for ASEAN Aris D. Dacanay said he previously forecasted a pause in June “to be mindful of the Fed’s preference of taking its time,” but now expects a 25-bp rate cut on Thursday.

“Due to low inflation over the past two months and slow growth in 1Q 2025, we now expect the BSP to cut its policy rate by 25 bps to 5.25% (on June 19),” he said.

Inflation cooled to an over five-year low of 1.3% in May, as utility costs rose at a slower pace. This brought the five-month average to 1.9%, slightly below the BSP’s 2-4% target band.

“Easing inflation offers relief to consumers and businesses that grappled with elevated prices from 2022 until the first half of last year,” Moody’s Analytics economist Sarah Tan said.

ANZ Research said the outlook for inflation “remains benign amid softer global commodity prices.”

“Given how retail rice prices haven’t plunged as low as global rice prices did, there is still room for food and overall inflation to remain subdued throughout the rest of 2025,” Mr. Dacanay said.

In May, rice inflation continued its downtrend, falling to 12.8% from the 10.9% decline in April.

Metropolitan Bank & Trust Co. Chief Economist Nicholas Antonio T. Mapa said he expects inflation to be “target consistent” for this year, 2025 and 2026.

The central bank slashed its risk-adjusted inflation forecasts to 2.3% in 2025 from 3.5% previously; and 3.3% in 2026 from 3.7% previously. It also now expects inflation to average 3.2% in 2027.

Below-target growth

Angelo B. Taningco, chief economist of Security Bank, said below-target gross domestic product (GDP) growth in the first quarter, as well as the strong peso, are some of the factors the BSP will take into consideration for this week’s decision.

Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said he expects a rate cut this week “with GDP growth still struggling to engineer a material pickup.”

The Philippine economy expanded by an annual 5.4% in the first quarter, slightly faster than the 5.3% growth in the fourth quarter of 2024 but slower than the 5.9% pace in the same quarter last year.

This was also below the government’s 6-8% growth target band for the year.

“We think this slowdown adds pressure on the BSP to hasten its easing cycle. This is because a policy rate cut can help shore up the country’s services exports (or exports in general) by improving the peso’s competitiveness vis-à-vis other currencies,” Mr. Dacanay said.

Reinielle Matt M. Erece, Oikonomia Advisory & Research, Inc. economist, said the peso’s recent strength gives the BSP some headroom to cut rates ahead of the US Federal Reserve.

The local unit closed at PHP 56.21 per dollar on Friday, falling by 32.5 centavos from its PHP 55.885 finish on Wednesday, Bankers Association of the Philippines data showed.

This was the peso’s weakest finish in more than a month or since its PHP 56.42 close on April 28. It was also the first time the local currency breached the PHP 56-per-dollar level since ending at PHP 56.145 on April 29.

Year to date, the peso has gained by PHP 1.635 from its PHP 57.845 close on Dec. 27, 2024.

Ms. Tan said the recent stabilization of the peso will “provide an additional nudge to the decision-making process.”

“Continued monetary easing would play a vital role in supporting the domestic economy amid a complex external environment. While negotiations with the US to lower reciprocal tariffs are ongoing, the outcome remains uncertain,” she said.

Maybank Investment Banking Group Economics Research said further rate cuts will also help shield the country’s economy against global growth uncertainties and tariff-related risks.

Outlook

Analysts expect the BSP to lower borrowing costs further this year as inflation remains under control. 

“Given the manageable inflation outlook, we think the BSP will lower the policy rate by another 50 bps by (third quarter) 2025 bringing the terminal rate to 5%,” ANZ Research said.

Oikonomia’s Mr. Erece said the BSP could cut rates by 50-75 bps more this year in 25-bp increments to avoid extreme foreign exchange fluctuations.

“A rate cut, more than its impact on borrowing costs, is also a signal to the markets that the central bank is confident that inflation is well under control,” he said.

Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said the BSP could hold borrowing costs steady at its Aug. 28 meeting.

“To avoid the need for an abrupt policy reversal, BSP will likely keep the policy rate above 5% before the end of this year and well above 4% through 2026. Risks include a spike in global oil prices, global tariff policy uncertainty, US stagflation, local wage hikes and other potential risks to a rise in local inflation expectations,” he said.

BSP Governor Eli M. Remolona, Jr. previously said the Monetary Board could cut rates twice in increments of 25 bps for the remainder of the year. — A.M.C. Sy