BSP to ease further to support economy

The Bangko Sentral ng Pilipinas (BSP) is expected to cut benchmark interest rates further this year to support the economy amid a fragile global environment as inflation continues to ease.

ING Bank sees the BSP slashing borrowing costs by 75 basis points (bps) more, it said in a report.

“A lower-than-expected inflation trajectory, stronger-than-expected local currency, and high real rates — combined with uncertainty on global growth — all suggest a deeper rate cut cycle,” ING Bank’s economics unit said.

“We now expect the policy rate to reach 4.75% by the end of the year, which should contain peso appreciation.”

For its part, Bank of America (BofA) Global Research said in a separate report that it expects the central bank to deliver two more cuts in the coming months.

“We think the BSP will cut its policy rate at least 50 bps more for the balance of 2025, with the next cut likely on its June 19 meeting,” it said.

“The Bangko Sentral ng Pilipinas has returned to an easing bias, as policy and growth outlook have cleared up. GDP (gross domestic product) growth in the Philippines continues to stay weak and with the decline in oil and rice prices, inflation is set to stay low for an extended period, giving BSP room to ease further,” BofA Global Research added. “With the policy rate presently at 5.5%, the monetary policy stance would now appear restrictive.”

It expects the Philippine economy to expand by 5.5% this year and 5.6% in 2026, which are both below the government’s 6-8% growth target for those years.

Philippine GDP expanded by 5.4% in the first quarter, slightly faster than the 5.3% growth in the prior three-month period but slower than the 5.9% pace in the same quarter last year.

Department of Economy, Planning, and Development Undersecretary Rosemarie G. Edillon said that GDP needs to expand by at least 6.2% in the remaining three quarters to reach 6% growth — the low end of the government’s 6-8% growth target — by yearend.

BofA Global Research said that most central banks in the Association of Southeast Asian Nations (ASEAN) region have delivered rate cuts this quarter, resuming their easing cycles following the “heightened uncertainty” earlier this year.

“We expect this dynamic to continue, as relative stability in financial markets coupled by some breather on trade risks gives a window of opportunity for ASEAN central banks to cut rates further.”

Last month, the Monetary Board slashed benchmark interest rates by 25 bps to bring the policy rate to 5.5%, putting its rate-cut cycle back on track after an unexpected pause in February as officials considered the potential impact of the broad uncertainty brought about by the Trump administration’s shifting trade policies on the Philippine economy.

The BSP has now cut borrowing costs by 100 bps since it began its easing cycle in August last year.

Last week, BSP Governor Eli M. Remolona, Jr. said that the Monetary Board could deliver two more 25-bp cuts this year, with the next reduction on the table as early as next month’s meeting.

The BSP chief said cooling inflation gives them “plenty of room” to ease their policy stance further, although they don’t want to cut “too much” as this could stoke prices anew.

After the June 19 review, the Monetary Board’s remaining meetings are scheduled for August, October and December.

Meanwhile, ING said that the peso may weaken anew in the coming months following its recent surge as market risks due to global trade developments could affect the economy.

“While the Philippines is largely a domestic demand-driven economy, tariffs and the global trade slowdown are likely to impact export growth and BPO (business process outsourcing) business negatively in 2025,” it said.

“Balance of payments (BoP) weakness persisted into the first quarter of 2025. Consequently, we anticipate the PHP to exhibit a mild depreciation bias,” it added. “However, this view could be challenged by potential further dollar weakness and comments from the BSP indicating limited intervention to curb peso strength in such a scenario.”

The central bank earlier said it normally refrains from intervening in the foreign exchange market and only does so in “small amounts” when necessary to curb speculation and keep markets orderly.

The peso has been trading at the PHP 55 level this month due to broad dollar weakness after moving around the PHP 57-PHP 58 range for most of the first quarter as Mr. Trump’s policy announcements following his return to the White House in January roiled global financial markets.

The local unit last week hit near two-year highs as the dollar was under pressure after Moody’s Ratings cut the United States’ triple-A credit rating but has since weakened.

On Thursday, the peso closed at PHP 55.73 against the greenback, down by 25.5 centavos from Wednesday’s finish, after a US court ruling blocking most of Mr. Trump’s “Liberation Day” reciprocal tariffs announced in April lifted the dollar.

Year to date, the peso is still up by PHP 2.115 or 3.8% from its end-2024 close of PHP 57.845. — Luisa Maria Jacinta C. Jocson