Archives: Business World Article

The World Bank  is committed to extending around USD 2.75 billion in loans to the Philippines for fiscal year 2026.

In an e-mail interview, World Bank Country Director for the Philippines, Malaysia, and Brunei Zafer Mustafaoğlu said the amount is 3.7% lower than the USD 2.857-billion lending program for the country for fiscal year 2025, which started in July 2024 and ends in June.

Mr. Mustafaoğlu last December said that the World Bank is finalizing the new country partnership framework for the Philippines, which will cover 2025-2028.

World Bank data showed the USD 4-million Roads to Development project is scheduled to be approved on Feb. 28. The project aims to improve rural road access in six formally acknowledged Moro Islamic Liberation Front camp communities.

Also up for approval on March 5 are the USD 454.94-million Mindanao Transport Connectivity Improvement Project (MTCIP) and the USD 495.6-million Health System Resilience Project.

The MTCIP focuses on local road improvements, climate resiliency, and road safety in the Cagayan de Oro, Davao, and General Santos corridor.

The health system project aims to strengthen provincial health systems, as well as improve the prevention, preparedness and response to health emergencies, including climate-driven adverse events.

The USD 67.34-million Civil Service Modernization Project, which is set to be approved on March 10, seeks to improve human resource management in National Government agencies.

The USD 800-million First Energy Transition and Climate Resilience development policy loan is also up for approval on March 31. It involves ramping up the adoption of clean energy technologies; boosting the security and competition of electricity markets; and improving water management.

The Department of Agriculture’s USD 1-billion Sustainable Agriculture Transformation Program is also up for approval on June 5. It aims to promote climate-resilient agri-food systems for increased productivity, enhanced diversification, and efficient use of public resources in the Philippines.

The USD 240.6-million Accelerated Water and Sanitation Project in selected areas is scheduled for approval on June 27. It aims to boost access to safe water and sanitation services, as well as strengthen the efficiency of local government-run water service providers.

The Department of Education’s USD 600-million Project for Learning Upgrade Support and Decentralization seeks to “improve the foundational literacy and numeracy of kindergarten and primary education learners, as well as the learning outcomes in reading and mathematics of lower secondary education learners in public schools nationwide.” It is up for approval on July 16.

The USD 700-million Community Resilience Project, scheduled for July 28, aims to “enable participatory community-driven resilience planning and investments in vulnerable areas.”

In its annual report for fiscal year 2024, the World Bank said the Philippines was the fifth-biggest borrower with USD 2.35 billion in approved loans from the International Bank for Reconstruction and Development.

Ukraine was the World Bank’s biggest borrower with USD 4.086 billion in loans, followed by Turkey with USD 3.191 billion, Indonesia with USD 3.028 billion, and India with USD 2.943 billion.

The total amount of loans secured by the Philippines in 2024 was 0.6% higher than USD 2.336-billion loans in 2023. – Aubrey Rose A. Inosante, Reporter

The Philippines is ready to face the uncertainties brought by US President Donald J. Trump’s trade policies as it implements the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act, Finance Secretary Ralph G. Recto said.

Mr. Recto and Trade Secretary Ma. Cristina Aldeguer-Roque on Monday signed the implementing rules and regulations (IRR) of the CREATE MORE law.

“With the signing of this IRR, we now send a clear message to the world: the Philippines means business. We are ready to compete. We are a dependable economic ally. We offer stability amid uncertainty. And yes — we are Trump 2.0-ready,” he said in a speech at the signing ceremony.

President Ferdinand R. Marcos, Jr. last November signed into law the CREATE MORE Act, which seeks to make the country more competitive and attractive to investors.

“On the part of the government, we are committed to making CREATE MORE not just a tool to attract more investments — but a magnet to keep them here, grow them here, and give every reason for investors to place their trust in the Philippines. Again and again,” Mr. Recto said.

Last month, Mr. Recto said the CREATE MORE will convince companies operating in China and Taiwan to move operations to the Philippines amid Mr. Trump’s aggressive tariffs.

Mr. Trump has already announced tariffs on all steel and aluminum imports beginning on March 12 and imposed 10% tariffs on goods from China.

The US president is also seeking to impose reciprocal tariffs across all countries that tax US imports, raising fears of a broader trade war.

The Department of Finance (DoF) said in a statement that the IRR provides clearer guidelines on the transitory rules for pre-CREATE registered business enterprises (RBEs) to continue receiving their previously granted tax incentives. The RBEs may also avail of additional incentives or measures under CREATE MORE.

“It also directly addresses investor concerns regarding the issuance of the value-added tax zero-rating certificate by providing detailed guidelines on eligibility and compliance criteria and clarifying the certificate’s covered period,” the DoF said.

One of the features of the IRR is prohibiting double registration of projects to deter redundant incentives and ensure responsible fiscal management.

Meanwhile, the Philippines is targeting to conduct a series of roadshows to promote CREATE MORE starting March this year.

“It is useless to have a law and to have IRR that nobody knows about. So, our job now is to announce it to the world,” Office of the Special Assistant to the President for Investment and Economic Affairs Secretary Frederick D. Go told a press briefing on Monday.

“We have scheduled trips to Korea, to the United States, to Japan, to Europe, to the Middle East, and to China,” he added.

Mr. Go also said the CREATE MORE’s rules “stayed true and consistent” with the intent of the law. — Aubrey Rose A. Inosante and Justine Irish D. Tabile

The Bangko Sentral ng Pilipinas (BSP) is likely to continue its easing cycle, but second-round effects from a looming global trade war could hamper its policy path, analysts said.

“The BSP remains in an easing mode from a fundamentally tight monetary stance; it is yet to unwind its significant tightening of previous years,” GlobalSource Partners Country Analyst and former BSP Deputy Governor Diwa C. Guinigundo said.

“However, the BSP could find itself in the middle of its easing mode faced with upside risks,” he added.

The central bank unexpectedly held interest rates steady last Thursday, leaving the target reverse repurchase rate (RRP) unchanged at 5.75%.

This after the Monetary Board delivered three straight rate cuts since it began easing in August. It cut rates by a total of 75 basis points (bps) by end-2024.

BSP Governor Eli M. Remolona, Jr. said the decision to hold rates was due to global uncertainties arising from the US’ tariff policies. He has said he is more concerned about the indirect effects of these tariff moves, as direct effects on the Philippines will likely be modest.

Markets have been rattled by fears of a global trade war amid US President Donald J. Trump’s plan to slap reciprocal tariffs on every country that taxes US imports.

Mr. Guinigundo said these tariff adjustments could directly impact price levels and domestic inflation in the short term.

“Trade uncertainties also tend to increase the risk premium and therefore they could also pose inflationary pressures. Direct effects of tariff and trade uncertainties as well as the impact of fuel prices could be limited as yet, but the indirect effects on wages, transport fare, and domestic pricing could be substantial,” he said.

Mr. Guinigundo said these second-round effects could “build up into inflation” in the coming months.

In a report, Capital Economics said the indirect impact from reciprocal tariffs “would potentially prove bigger” than a universal tariff.

“A reciprocal tariff would potentially undermine the case for friendshoring in those emerging markets that have high tariff barriers given that there would be other, less vulnerable options for multinationals to consider when it comes to supply chain configuration — notably Vietnam and other parts of Southeast Asia as well as developed markets,” it said.

ANZ Research said emerging Asian economies would be under a “direct line of fire” if reciprocal tariffs were implemented.

“The current trade tensions could become significantly more disruptive if the US administration imposes reciprocal tariffs on Asian economies,” ANZ said.

“Unlike in 2018, when these economies experienced only secondary effects from the US-China trade war, they would now be directly impacted.”

The United States is the Philippines’ top destination for exports, while China is usually the Philippines’ biggest source of imports.

Citi Economist for the Philippines Nalin Chutchotitham said these trade policies could also put pressure on the peso.

“Looking ahead, the delayed Fed funds rate cut and the US trade policy uncertainties pose risks of peso depreciation, which could impact inflation via imports of food and energy, as well as from converted income remittances from overseas workers,” she said.

Measured easing

Despite the pause last week, analysts said that the BSP will likely continue easing rates but at a cautious and measured pace.

“We think the decision signals BSP is looking to slow the pace of the easing cycle (after three consecutive cuts), based on the governor’s definition of ‘measured’ and absent a strong rationale for the on-hold decision,” Nomura Global Markets Research analysts Euben Paracuelles and Nabila Amani said.

Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said he sees limited room for monetary easing this year.

“A narrowing interest rate differential could lead to capital outflows, while the country’s current account deficit heightens the vulnerability to external shocks… Keeping interest rates steady might be needed to mitigate these risks. We still expect the policy rate to end the year at 5.25%,” he said.

For the rest of the year, Mr. Guinigundo said he expects two more rate cuts.

“Depending on future data on inflation and inflation expectations, two more rate cuts could be in the works,” he said.

“Easing monetary policy could have marginal effects on growth. But tightening it promises better results in taming inflation without significant collateral harm on growth.”

At the same time, Nomura expects the Monetary Board to lower borrowing costs by 75 bps through three rate cuts.

“We still forecast an additional 75 bps of policy rate cuts in this cycle, taking the RRP rate to 5%, which we still believe is BSP’s estimate of the neutral level, given its forward guidance suggesting its stance remains restrictive and that it will look to reduce this restrictiveness.”

Both Nomura and Citi expect the Monetary Board to cut rates in April, August and December by 25 bps each.

“While we think the BSP could afford to cut a total of 75 bps this year, considering a high real policy rate and positive interest rate differential with the Fed, Governor Remolona’s more cautious forward guidance of a total of 50-bp cut this year means a third cut still hinges on several factors besides domestic demand and inflation,” Ms. Chutchotitham said.

For his part, Mr. Neri said the BSP could resume cutting rates in June.

“Additional policy easing is still possible later this year, as the outlook for domestic inflation continues to be positive. There’s a chance that the BSP could cut in June if the gross domestic product (GDP) growth in May continues to disappoint,” he said.

However, he said uncertainties from the Federal Reserve’s guidance and changing global conditions could make cutting rates in the second half of the year more challenging.

Mr. Remolona has said the BSP is still in an easing cycle, adding there is a possibility of up to 50 bps worth of rate cuts this year.

RRR cut in April

Meanwhile, Nomura expects the BSP to further reduce the reserve requirement ratio (RRR) in April.

“We think April is a plausible window, as demand for liquidity could pick up ahead of the midterm elections in May,” it said.

“We have also argued that this sequencing (i.e., RRR cuts first before further rate RRP cuts) makes sense. From BSP’s perspective, these cuts are consistent with its longer-term goal of reducing the RRR to single-digit levels but also helping to further improve the transmission of its policy rate cuts later in the year.”

Mr. Remolona has said an RRR cut is still on the table this year, possibly before the Monetary Board’s next policy review on April 3.

He has signaled a 200-bp reduction, which would bring the RRR for big banks to 5% from the current 7%.

“Potentially, such a move would help support economic activity while having limited impact on the exchange rate versus the policy rate,” Ms. Chutchotitham added. — Luisa Maria Jacinta C. Jocson

The country’s external debt service burden jumped by 14% as of end-November amid a rise in both principal and interest payments, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Debt servicing on external borrowings rose by 14% to USD 15.735 billion in the 11-month period from USD 13.808 billion in the same period in 2023.

Central bank data showed principal payments increased by 12.9% to USD 8.39 billion from USD 7.431 billion in the same period in 2023.

Amortization payments accounted for over half (53.3%) of total debt servicing during the period.

Meanwhile, interest payments jumped by 15.2% to USD 7.345 billion in the January-to-November period from USD 6.377 billion a year ago.

The BSP said that the debt service burden represents principal and interest payments after rescheduling. 

This includes principal and interest payments on fixed medium- and long-term credits including International Monetary Fund credits, loans covered by the Paris Club and commercial banks’ rescheduling, and New Money Facilities.

It also covers interest payments on fixed and revolving short-term liabilities of banks and nonbanks.

However, the debt service burden data exclude prepayments on future years’ maturities of foreign loans and principal payments on fixed and revolving short-term liabilities of banks and nonbanks.

Latest data from the BSP showed the Philippines’ outstanding external debt hit a record USD 139.64 billion as of end-September, higher by 17.5% year on year.

Broken down, this was composed of USD 86.88 billion in public sector debt and USD 52.76 billion from private sector obligations.

This brought the external debt-to-GDP ratio to 30.6% at the end of the third quarter.

At end-September, the external debt service burden as a share of gross domestic product (GDP) stood at 3.9%, up from 3.5% in the previous year.

The BSP’s external debt data cover borrowings of Philippine residents from nonresident creditors, regardless of sector, maturity, creditor type, debt instruments or currency denomination.

“The higher external debt service was largely due to higher interest rates and weaker peso since 2022, as well as the need to finance wider budget deficits that increased the need for total both local and foreign borrowings,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

Though the central bank began cutting rates in August last year, BSP Governor Eli M. Remolona, Jr. has said the policy rate is still in “restrictive territory.”

The central bank cut rates by 25 basis points at each of its last three meetings last year, bringing the key rate to 5.75%.

The Monetary Board last week kept interest rates steady amid global uncertainties.

The peso was under pressure towards the fourth quarter of 2024. The local unit fell to the record-low PHP 59-per-dollar level twice in November.

Latest data from the Treasury showed the budget deficit ballooned to P1.18 trillion in the January-to-November period from the PHP 1.11-billion deficit last year. 

“Going forward, the National Government (NG) reduced the share of foreign borrowings in its overall borrowing program to reduce forex risks involved in external borrowings denominated in US dollars or foreign currencies,” Mr. Ricafort said.

Finance Secretary Ralph G. Recto has said they will continue lowering the share of external borrowings in its borrowing program.

From this year to 2027, the NG plans to source at least 80% of its borrowing program from domestic sources, and 20% from foreign lenders. The government previously adopted a 75:25 borrowing mix. – Luisa Maria Jacinta C. Jocson, Reporter

The total resources of the Philippine financial system rose by 7.8% to nearly PHP 34 trillion in 2024, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Resources of banks and nonbank financial institutions  jumped to PHP 33.78 trillion last year from PHP 31.34 trillion in 2023.

Financial system resources include funds and assets such as deposits, capital, as well as bonds or debt securities.

BSP data showed banks’ resources increased by 8.9% to PHP 28.26 trillion as of end-2024 from PHP 25.96 trillion in the previous year.

Broken down, resources of universal and commercial banks stood at PHP 26.44 trillion, higher by 8.7% from PHP 24.32 trillion in 2023.  Big banks accounted for the bulk or 78.3% of total resources last year.

Thrift banks’ resources went up by 5.9% to PHP 1.17 trillion in 2024 from PHP 1.1 trillion in the year prior.

Total resources held by digital banks reached PHP 121.8 billion in 2024, up 33.6% from PHP 91.2 billion in 2023. The BSP began consolidating data from digital banks starting March 2023.

Rural and cooperative banks’ resources climbed by 18% to PHP 527.1 billion as of end-2024 from PHP 446.5 billion in the prior year.

Meanwhile, latest available data showed that nonbanks’ resources stood at PHP 5.52 trillion as of end-June. There were no available data as of end-December.

Nonbanks include investment houses, finance companies, security dealers, pawnshops and lending companies.

Institutions such as nonstock savings and loan associations, credit card companies, private insurance firms, the Social Security System and the Government Service Insurance System are also considered nonbank financial institutions.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the growth in financial resources could largely be attributed to the growth in bank lending.

Separate BSP data showed outstanding loans of universal and commercial banks jumped by 12.2% year on year to PHP 13.1 trillion in December. This was the fastest pace of bank lending growth in two years.

“Furthermore, the continued growth in banks’ net income also contributed to the growth in banks’ capital and overall assets,” Mr. Ricafort added.

The Philippine banking industry’s combined net profit rose by 9.8% to an all-time high of PHP 391.28 billion at end-December from PHP 356.49 billion in the year-ago period. 

The central bank’s rate-cutting cycle also brought down loan rates and increased demand for credit, Mr. Ricafort said.

In 2024, the Monetary Board lowered borrowing costs by a total of 75 basis points (bps) since it began its easing cycle in August, bringing the benchmark rate to 5.75%.

The reduction in reserve requirements also supported the ability of banks to increase loans and investments, he added.

The BSP cut the reserve requirement ratio for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5%, which took effect last October. — Luisa Maria Jacinta C. Jocson

Philippine President Ferdinand R. Marcos, Jr. has tapped former Bases Conversion and Development Authority (BCDA) Chief Executive Officer (CEO) Vivencio “Vince” B. Dizon to head the Department of Transportation (DoTr).

“He (Mr. Dizon) is already authorized by the Office of the President to start the transition at the Department of Transportation in coordination with the team of Secretary Jaime J.  Bautista, who has resigned due to health reasons,” Executive Secretary Lucas P. Bersamin said in a statement on Thursday.

Mr. Bautista’s resignation will take effect on Feb. 21.

Mr. Dizon, 50, is the chief regulatory officer of the Razon-led Prime Infrastructure Holdings. He served as president and CEO of BCDA from 2016 to 2021.

Under the Duterte administration, Mr. Dizon was the presidential adviser on flagship programs and projects, as well as deputy chief implementer of the National Action Plan against the coronavirus disease 2019 (COVID-19).

In a DoTr statement, Mr. Bautista thanked the President for the opportunity to work in government, calling it “his most challenging stint.”

Mr. Bautista said he looks forward to a “smooth transition” and a “much-needed vacation” after having worked as DoTr chief since 2022.

Mr. Bautista previously served as the president and chief operating officer of flag carrier Philippines Airlines where he retired in 2019.

The newly appointed Transportation secretary is set to inherit big-ticket and long-delayed infrastructure projects such as the construction of the Metro Rail Transit Line 7 (MRT-7), North-South Commuter Railway, and Mindanao Railway Project.

“He has to assess all projects in the pipeline. He can’t shift course immediately, because of the budget approved by Congress,” Rene S. Santiago, a founding member of the Transportation Science Society of the Philippines, told BusinessWorld in a Viber message.

“The previous obsession with railways needs to be dialed down and he needs to focus on the crisis of the dwindling supply of buses and jeepneys.”

In August last year, Mr. Marcos rejected a proposal to suspend the government’s Public Utility Vehicle Modernization Program (PUVMP), defending it from criticisms that the plan had been rushed.

The modernization program started in 2017, aiming to replace traditional jeepneys with units that have at least a Euro 4-compliant engine to cut pollution.

Transport group Manibela Chairman Mar S. Valbuena said the group is hoping that the DoTr will revisit the implementation of PUVMP now that it will be under a new leadership.

“We are hoping that the new Secretary will listen to our suggestions and proposed transport solutions. We will remain vigilant, particularly, on the policies he will pursue,” Mr. Valbuena said.

Meanwhile, Mr. Santiago said Mr. Dizon had a good track record at the BCDA, citing his work in overseeing the construction of the Athlete’s Village in the New Clark City Sports Complex in Tarlac.

Nigel Paul C. Villarete, senior adviser on PPP (public-private partnership) at Libra Konsult, Inc., welcomed the appointment of Mr. Dizon, but said he should ensure all existing programs and projects continue unhampered and proceed smoothly.

“DoTr is tricky because it requires a good balance across planning, implementation and operations, and its numerous sub departments and attached agencies would need varied expertise and experience to get a good grasp of this very essential department,” Mr. Villarete said in a Viber message.

Mr. Villarete said the DoTr should also continue the public-private partnerships program, particularly for aviation projects.

“Of course, the other one on my list would be airports… We need to fast-track airport development in order to keep ahead. Transportation, especially air travel, is foremost in economic development,” he said.

Last year, the government privatized the Ninoy Aquino International Airport (NAIA), with San Miguel-led New NAIA Infra Corp. taking over its operations.

Two more regional airports have been awarded to the private sector in 2024, the Laguindingan International Airport and New Bohol-Panglao International Airport. These two regional airports were both awarded to Aboitiz InfraCapital, Inc.

“Vince Dizon provides the agility and dynamism of youth to the Transportation department, which had been unfortunately absent in the previous leadership,” Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said in a Facebook Messenger chat,

He said his experience in handling infrastructure projects and his time as the presidential projects adviser will help him deal with issues in the transportation sector.

“We trust that the new secretary will continue to prioritize the movement of people, especially the most vulnerable, and pursue more people-centric transportation policies,” said AltMobility PH Spokesperson Patrick R. Jalasco.

Meanwhile, Transportation Undersecretary for Railways Jeremy S. Regino said in a text message that he submitted his irrevocable resignation on Jan. 22. – John Victor D. Ordoñez and Ashley Erika O. Jose, Reporters

The Bangko Sentral ng Pilipinas (BSP) unexpectedly held interest rates steady on Thursday as global uncertainties threaten the outlook for inflation and growth, although signaled that the easing cycle is still underway.

At its first policy meeting of the year, the Monetary Board left the target reverse repurchase rate unchanged at 5.75%.

Rates on the overnight deposit and lending facilities were also kept at 5.25% and 6.25%, respectively.

The central bank had cut rates by 25 basis points (bps) at each of its last three meetings since August 2024.

“On balance, uncertainty about the outlook for inflation and growth warrant keeping monetary policy settings steady,” BSP Governor Eli M. Remolona, Jr. said.

“Before deciding on the timing and magnitude of further reductions in the policy interest rate, the Monetary Board deems it prudent to await further assessments of the impact of global policy uncertainty and the potential effects of the actual policies.”

The BSP’s decision came as a surprise after 19 out of 20 analysts polled by BusinessWorld had anticipated a 25-bp cut at Thursday’s meeting. Only one analyst expected the BSP to keep rates steady.

“Normally, we would have cut further, but something has changed. The thing that has changed is the uncertainty over what’s going on globally, especially the uncertainty over trade policy,” Mr. Remolona said.

US President Donald J. Trump’s plan to impose reciprocal tariffs on every country that charges duties on US imports has raised fears of a wider global trade war.

Since taking office in January, Mr. Trump has slapped tariffs on Chinese imports and a 25% tariff on steel and aluminum imports, while putting on hold duties on imports from Mexico and Canada.

“But there are other sources of uncertainty, and we are not quite comfortable with evaluating the impact of that, the uncertainty itself. We don’t quite know what the policies will be,” Mr. Remolona added.

The BSP chief said they are looking at recalibrating their models to better account for these uncertainties.

“We are facing an unusual phenomenon in terms of the uncertainty of policies that will be put in place and our models don’t capture those things very well,” he said.

‘Still in easing cycle’

Meanwhile, Mr. Remolona said that despite the policy pause, the central bank is “still in the easing cycle” and is not considering raising borrowing costs.

“Looking ahead, the BSP anticipates continuing its measured shift to less restrictive monetary policy settings, even as previous policy adjustments further work their way through the economy,” he said.

“For now, the issue is when do we actually ease in terms of moving the policy rate down. I think we have five more meetings this year, so in some of those meetings we will probably be easing (but) not all of those meetings.”

The central bank will likely continue reducing interest rates by 25 bps at a time, he said.

“It doesn’t mean 25 bps each time, each policy meeting. It just means when we do cut, it will just be 25 bps. At least we hope so, I hope we don’t need to cut by more than that.”

Mr. Remolona earlier said they could cut by up to 50 bps this year. Asked about this outlook again, he said: “That’s what it looks like.”

The BSP will also continue to consider keeping rates steady, depending on the data, Mr. Remolona said, but added that a rate cut is still “on the table” for the next Monetary Board meeting on April 3.

Inflation outlook

The central bank said the risks to the inflation outlook have become “broadly balanced” for this year and the next.

The central bank raised its risk-adjusted forecast for this year to 3.5% from 3.4% previously. However, it kept its projection for 2026 at 3.7%.

The BSP’s baseline forecasts are also close to its risk-adjusted projections.

“As we said, because the risks are now more broadly balanced, they’re not much different from the risk-adjusted forecasts,” BSP Deputy Governor Francisco G. Dakila, Jr. said.

Mr. Dakila said there could be a lag in the impact of the minimum wage adjustments implemented last year.

“It can be noted that taking an average of the adjustments in nominal minimum wages in 2024 across the regional wage boards would amount to about 8.1% on the average, so that has an impact on inflation for this year, in particular towards the latter half of 2025,” he said.

Positive base effects from easing commodity price pressures in 2024 could also exert some impact in the second half of this year, he added.

“Because of those two factors, there can be some moderate uptick of inflation in the second half of 2025, but we are seeing that inflation will go back to the midpoint of the target band in 2026, and that comes on the back of a decline in oil prices as the market remains in backwardation,” Mr. Dakila said.

“On the risks… there can be some upside pressures coming from utilities, but that is counterbalanced by the moderation of inflation in rice,” he added.

Meanwhile, Mr. Remolona said domestic growth prospects “continue to be firm.”

“However, uncertainty over global economic policies and their impact on the domestic economy has increased significantly,” he added.

Economic managers are targeting 6-8% gross domestic product (GDP) growth this year.

While inflation concerns have a “bigger weight” in the BSP’s policy making, Mr. Remolona said they still take account of economic growth.

“We don’t want to lose output unnecessarily. If we can manage, we want to reduce inflation without reducing output. That’s a balancing act. This time, the balancing act is more difficult than usual.”

‘Short-lived’ pause?

Meanwhile, analysts expect the central bank to resume its rate-cutting cycle soon.

“We think this represents a pause, rather than a halt to the easing cycle,” Capital Economics Senior Asia Economist Gareth Leather said.

“We reckon that (Thursday’s) rate hold, following three consecutive cuts, will prove to be short-lived,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said.

Mr. Chanco said sluggish GDP growth and within-target inflation provides “ample policy space for rate reductions without losing the credibility of its ‘less restrictive’ posture.”

“Provided inflation remains under control, then further cuts are likely over the coming months,” Mr. Leather added.

Both Capital Economics and Pantheon expect the BSP to deliver up to 100 bps worth of rate cuts this year.

“With inflation as moderate as it is, the real policy rate in the country is still some 250 bps over its historical average. All told, we’re sticking to our baseline view and expect to see 100 bps in additional cuts before yearend,” Mr. Chanco added.

The Philippines is also unlikely to be significantly impacted by Mr. Trump’s proposed tariffs.

“While we think US trade policy will remain uncertain for some time, the central bank clearly needs some time before it decides on its response. Our assumption is that the Philippines will be hit by a 10% universal tariff, but that the impact will be relatively small (on the currency, inflation and growth),” Mr. Leather said.

RRR cuts ‘fairly soon’

Meanwhile, Mr. Remolona said that reserve requirement ratio (RRR) cuts are still in the pipeline for this year.

“What I can say is we will likely reduce it from 7% to 5%. The timing is still under discussion, but I think it will be fairly soon. Maybe sooner than the middle of the year,” he said.

The BSP reduced the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5%, which took effect last October.

Meanwhile, the central bank is also seeking to develop a “playbook” to guide foreign exchange intervention.

“We’re developing a playbook for intervention in the foreign exchange market. We have been intervening based on our judgment and our experience, but we haven’t codified this experience,” Mr. Remolona said.

This would not result in further regulation, he said, but will be based on “better economic analysis and better market intelligence.”

“We’re worried about the pass-through to exchange rate because, you know, global trade is often invoiced in dollars…even when the story behind the depreciation is really a stronger dollar,” he said.

“But when the peso seems to depreciate against the dollar, then at some point it causes inflation. We worry about that. By the way, for most of the year, it hasn’t been a peso depreciation. It’s been more of a strong dollar that’s been moving the exchange rate,” he added. – Luisa Maria Jacinta C. Jocson, Reporter

The Philippines could lose as much as USD 1.89 billion (PHP 107.6 billion) in exports of mostly mechanical and electrical equipment to the US if President Donald J. Trump makes good on his threat to impose higher tariffs, according to a House of Representatives think tank.

The amount could fall to a net loss of USD 1.6 billion due to so-called trade diversion benefits, the Congressional Policy and Budget Research Department (CPBRD) said in a report released this month.

“A common feature of these products is that they currently benefit from minimal to zero US tariffs, making them particularly vulnerable to the imposition of higher duties,” CPBRD authors Mark Carmelo R. Manguera and Dawndale Albert O. Tanilon said in the 38-page discussion paper.

The CPBRD report examined the potential impact of the US tariff pronouncements on the Philippines under a second Trump administration.

The United States was the top destination for Philippine-made goods in 2024, with exports valued at USD 12.12 billion or 16.6% of total export sales.

According to the CPBRD, majority of Philippine export products expected to have negative net trade effects due to higher US duties are manufactured goods.

It noted that eight out of the 10 sectors fall within the category of mechanical and electrical machinery, equipment, and parts, while the remaining sectors — crustaceans and mollusks, and coconut and palm kernel oil — are classified as primary commodities.

Mr. Trump, who assumed office on Jan. 20, has already slapped an additional 10% tariff on Chinese goods, but delayed a 25% tariff on goods from Mexico and Canada for a month. This is part of his broader “America first” trade policy which seeks to prioritize US economic interests.

Mr. Trump has also threatened to impose reciprocal tariffs on every country that sets duties on US imports, a move that would affect the Philippines.

“The most significant decline in Philippine exports is projected for discs, tapes, solid-state non-volatile storage devices, smart cards, and other media for the recording of sound or of other phenomena, with a reduction of USD 386.7 million,” the CPBRD said.

Philippine exports of coconut and palm kernel are expected to decline by USD 374.5 million, while exports of automatic data processing machines are set to drop by USD 187.6 million.

Exports of electronic machinery, particularly electric transformers, static converters and inductors, would also drop by USD 143.5 million.

Philippine exports of telephone sets, including smartphones and other transmission network devices, are expected to fall by USD 130 million.

“Other products that would be heavily affected by the US tariffs are in electronic integrated circuits (USD 97.82 million); machinery parts and accessories (USD 77 million); insulated wire, cable, other electric conductors, and optical fiber cables (USD 74 million); monitors and projectors (USD 64 million); and crustaceans, mollusks, and other aquatic invertebrates (USD 63 million),” the CPBRD said.

Positive effects

On the other hand, the CPBRD said there could be positive trade diversion effects for certain export products, such as apparel and footwear.

“This is reminiscent of the ‘bystander effect’ during the US-China trade clash, where some third countries were able to take advantage of shifts in trade dynamics…  However, in terms of value, the net trade gains are relatively modest,” it said.

The biggest projected positive net trade effect for the Philippines is in lasers, which is expected to jump by USD 37.3 million, while exports of seat parts are projected to rise by USD 18.2 million.

Trade in Philippine-made suits, jackets, trousers and dresses may increase by USD 17.3 million, while casual clothing products, such as jerseys and cardigans may jump by USD 17 million.

Women’s clothing, such as skirts and trousers, could also see a USD 13-million increase.

Other product categories to anticipated to post gains include knitted or crocheted garments (USD 12.79 million); cement, concrete or artificial stone (USD 12.73 million); men’s suits, ensembles, jackets, blazers, trousers, bib and brace overalls, breeches and shorts (USD 12.52 million); festive, carnival or other entertainment articles (USD 11.8 million); and electro-magnets (USD 10.93 million).

“To navigate the challenges posed by potential changes in US tariff policies, the Philippines must address both immediate and long-term barriers. Diversifying export markets by strengthening trade relations with alternative countries may reduce reliance on the US, while pursuing preferential access to the US market can help sustain existing trade flows,” the CPBRD said.

The Philippines should also try to minimize the adverse effects of US tariffs by exploring new markets and “capitalize on trade diversion, particularly from China, India and Indonesia,” it added.

“For the top five products that would be negatively affected by the US tariff pronouncements, China, Hong Kong, and Germany emerge as prominent global importers,” the CPBRD said, referring to discs; coconut; automatic data processing machines; electric transformers; and telephone sets.

“By focusing on these markets, the Philippines can strengthen trade and investment missions and explore opportunities to negotiate trade agreements, thereby enhancing access and competitiveness in these markets.”

The CPBRD said the Philippines should also “intensify negotiations” with the US for the reauthorization of its Generalized System of Preferences (GSP).

“The reauthorization of the GSP would effectively shield covered products from the tariffs that would be imposed by the US,” it said.

The think tank said the government should also leverage Republic Act No. 11981, or the Tatak Pinoy (Proudly Filipino) law, which aims to improve the country’s position in the global value chain by encouraging companies to make quality products.

“An opportunity for the country lies in the timely and effective formulation and implementation of the Tatak Pinoy Strategy… which aims to identify target sectors and actionable measures for domestic industries to produce and offer increasingly diverse and sophisticated products and services,” it said.

The Philippines could further insulate its economy by forging more free trade agreements with Canada, Europe and countries in the Middle East, Calixto V. Chikiamco, president of Foundation for Economic Freedom, said in a Viber message.

“It can [also] focus on goods like minerals, which the US needs, and therefore can’t be subject to tariffs,” he added.

Mr. Trump’s tariff plans provide the Philippines an opportunity to build up its manufacturing industry, Leonardo A. Lanzona, an economics professor at the Ateneo de Manila University, said in a Viber message.

The state should now seriously consider a “national industrialization policy” and streamline state-led investments into the creation of nickel processing plants and renewable energy technology factories, Jose Enrique “Sonny” A. Africa, executive director at think tank IBON Foundation, said in a Viber message. — Kenneth Christiane L. Basilio