Poll: BSP to keep policy rate on hold

The Bangko Sentral ng Pilipinas (BSP) will likely keep interest rates on hold this week as inflation risks linger, according to most analysts polled by BusinessWorld.

A BusinessWorld poll conducted last week showed 10 of 16 analysts expect the Monetary Board to pause monetary easing at its Oct. 9 meeting, keeping the benchmark rate at 5%.

On the other hand, six analysts anticipate a 25-basis-point (bp) rate cut, citing below-target inflation and the need to support economic growth. If realized, this would bring the benchmark rate to 4.75%.

The central bank has so far lowered borrowing costs by a total of 150 bps since the start of its easing cycle in August last year.

Security Bank Chief Economist Angelo B. Taningco said upside inflation risks would likely prompt the Monetary Board to hold rates steady on Thursday.

“I expect the Monetary Board to pause from rate cuts largely due to the inflation acceleration and upside inflation risks from potential extension of rice import ban and rice tariff hike,” he said in an e-mail.

September inflation data will be released on Oct. 7. A BusinessWorld poll of 12 analysts yielded a median estimate of 1.9% for September inflation, faster than the 1.5% in August, reflecting the impact of recent typhoons on food prices, as well as higher pump prices and electricity rates. This was within the BSP’s 1.5-2.3% forecast for the month.

The 60-day suspension on imports of regular milled and well-milled rice took effect on Sept. 1. However, the import ban is expected to be extended by another 30 days.

Moody’s Analytics economist Sarah Tan said a pause would allow the BSP to evaluate how its past rate cuts impacted the economy, particularly on domestic demand and lending activity.

“The central bank will also weigh the balance between supporting growth and ensuring inflation expectations remain anchored. Global oil price volatility, the impact of recent typhoons on food supply, and the Fed’s policy stance are also important considerations,” Ms. Tan said in an e-mail.

Philippine National Bank economist Alvin Joseph A. Arogo said a pause would minimize the depreciation pressure on the Philippine peso since the BSP eased more than the US Federal Reserve so far this year.

The local unit closed at PHP 58.196 per dollar on Sept. 30, weakening by PHP 1.066 or 1.83% from its PHP 57.13 finish on Aug. 29.

“A pause from the BSP will also be more supportive of the peso given the current USD/PHP levels, which lie above the 58-level despite a generally weak dollar,” Metropolitan Bank & Trust Co. (Metrobank) said in a separate commentary.

Metrobank said the BSP will likely wait for the release of third-quarter gross domestic product (GDP) data on Nov. 7 before making policy adjustments.

“We project household consumption and investment to remain tepid while the lagged effects of the BSP’s previous RRP (reverse repurchase rate) reductions begin to make a significant impact. We expect this to be the reason for the BSP to deliver another reduction to the RRP during its last meeting for 2025 in December,” it added.

In the first semester, the economy expanded by 5.4%, slower than the 6.2% growth posted last year. This was slightly below the government’s 5.5-6.5% target range for this year.

“With the central bank describing the current policy rate as the ‘Goldilocks rate,’ policymakers may require a firmer justification for an immediate adjustment to monetary policy,” Chinabank Research said in a note.

Rate cut

On the other hand, some analysts expect a 25-bp rate cut at this week’s meeting as inflation remains below the BSP’s 2-4% target and the pace of economic growth is still a concern.

Earlier, BSP Governor Eli M. Remolona, Jr. said they are open to delivering a cut this month if the country’s economic output further weakens.

Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said they expect a 25-bp cut on Thursday “to preempt downside risks to growth.”

“While inflation remains benign and below target, the BSP is likely to prioritize supporting economic momentum amid subdued fiscal spending, persistent external headwinds (and) recent weather-related disruptions that could weigh on activity,” Mr. Asuncion said.

Azril Rosli, economist at Maybank Investment Banking Group, said in an e-mail that sluggish investment spending and uncertainty from the US tariffs will also weigh on the outlook for growth.

Meanwhile, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message that the BSP could match the Fed’s rate cuts with 25-bp cuts each at the October and December meetings.

“These Fed rate cuts could be matched locally by the BSP so that healthy interest differential would eventually be maintained to help support/stabilize the peso exchange rate, import prices, and overall inflation,” he said.

The Monetary Board’s last meeting for this year is on Dec. 11.

Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said the BSP could have another rate cut in December as GDP growth in the third quarter likely weakened.

“We still see another 25-bp cut coming in December, as we expect the Q3 GDP report due in November to be weak enough to convince the Board to ease policy at least one final time,” he said in an e-mail.

In a note, Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said there is a higher probability the BSP will cut in December if third-quarter GDP confirms “potential demand softness.”

“With rates already near neutral and inflation seen converging to 3% by 2026-2027, we think the scope for further easing after this is limited,” Mr. Neri said.

“Nonetheless, the BSP could still deliver up to two more cuts if the economy continues to operate below potential. They may also decide to move in tandem with the Federal Reserve’s moves, especially if markets expect aggressive cuts after Powell’s term ends in May 2026.” — Katherine K. Chan