More rate cuts likely if growth weakens

The Bangko  ng Pilipinas (BSP) could cut rates next month, its top official said, noting the possibility of up to 75 basis points (bps) worth of easing for the entire year if economic output weakens further.

“We’ve been on an easing cycle for a while now. We just took a pause,” BSP Governor Eli M. Remolona, Jr. told Bloomberg in a televised interview with Haslinda Amin on Wednesday.

He said there was a higher likelihood that the Monetary Board will deliver a rate cut at its policy review on April 10, especially if inflation turns out better than expected.

Inflation sharply eased to 2.1% in February, bringing the two-month average to 2.5%. This is well within the central bank’s 2-4% target. 

March inflation data will be released on April 4.

Mr. Remolona also signaled the possibility of up to 50 bps worth of rate cuts this year. However, if economic output is weaker than anticipated, the central bank can deliver up to 75 bps worth of easing.

The Philippines’ gross domestic product (GDP) grew by 5.6% in 2024, falling short of the government’s revised 6-6.5% full-year target.

In its latest monetary policy report, the BSP said it sees economic growth settling at the lower end of the government’s 6-8% targets from this year until 2026, citing elevated global commodity prices and trade uncertainties.

First-quarter GDP data will be released on May 8.

US recession

Meanwhile, the BSP chief said that while he does not see a recession in the United States, a slowdown is “very likely.”

US President Donald J. Trump has pledged to impose broad reciprocal tariffs and additional sector-specific tariffs starting on April 2. 

Markets have been bracing for the potential impacts from inflationary pressures arising from these tariffs, which could prompt the US Federal Reserve to delay its own easing cycle.

The US central bank decided to hold interest rates steady on Wednesday, as expected. Fed Chair Jerome H. Powell said they are in no hurry to make any moves amid economic uncertainties.

Mr. Remolona said the tariff war would “absolutely” have spillover effects on the Philippines.   

“The tariff war is likely to slow down growth for everybody and then raise inflation for everybody. By how much, we don’t really know. But the bigger factor is the uncertainty itself,” he said.

However, this would only have a “modest” hit on the Philippine economy.

“We’ll be hit somewhat because we’re part of a global economy,” Mr. Remolona added.

Room for easing

Meanwhile, the BSP has space to deliver further policy easing amid low inflation, Nomura Global Markets Research said.

“Downside risks to growth, low inflation and high real rates mean there is still room to ease,” Nomura Global Markets Research analysts Sonal Varma and Si Ying Toh said in a report.

Nomura expects the central bank to cut rates by 75 bps this year.

“Disinflation is underway in Asia, with inflation falling within central bank targets across most countries,” it said.

Nomura said it also expects low inflation to be sustained.

“Underlying inflation has moderated by 1.2 percentage point compared to six months ago, and it has the second-highest real policy rate in the region, which suggests still-restrictive policy rates,” Nomura said.

“We expect another 75 bp in policy rate cuts, which would take the policy rate to 5% by end-2025.”

Meanwhile, ANZ Research said it expects the BSP to cut by 50 bps this year.

“For the remainder of 2025, we anticipate 50 bp of additional rate cuts in Indonesia, the Philippines, South Korea and Thailand,” it said in its latest research quarterly report.

“Monetary policy will be less efficacious, in our view. Monetary policy in the region has been a little more independent of the Fed than we had initially assumed,” it added.

Meanwhile, ANZ said it expects GDP to grow by 5.7% this year. This would miss the government’s 6-8% target for 2025.

It noted that household savings in the Asia region have been subpar.

“Savings shortfalls are high in Indonesia and the Philippines, where surveys revealed a drop in the share of income being allocated towards savings or a fall in the share of households with optimal savings.”

“Households are also becoming more circumspect on leverage.  The Philippines is the only exception where household borrowings are still growing at a solid pace. However, considering weak survey outlook on the financial condition of families, this lending cycle is unlikely to sustain in the long term.” — Luisa Maria Jacinta C. Jocson with Bloomberg