Monthly Recap: The case for interest rate cuts 

The year kicked off with a slew of Philippine data, a Federal Reserve (Fed) meeting, and Donald Trump beginning his second term as US President.

While US monetary authorities are on the lookout for the impact of Trump’s policies, domestic data point to Bangko Sentral ng Pilipinas (BSP) continuing to support the Philippine economy.

Look back

• The Philippines’ gross domestic product grew below the government’s goal for the second-consecutive year in 2024. Bad weather dampening farm output and still tepid consumer spending and investment were to blame.
• Inflation quickened in December, according to the latest government report. But the latest inflation print remained well-within the BSP’s 2% to 4% target for that month and the full-year 2024 average.
• The US Fed is on a wait-and-watch mode, with Chairman Jerome Powell reiterating the importance of pacing rate cuts especially, as Trump starts to implement his policies.
• Latest data prints all point to sustained monetary easing.

Moving forward

• Indications point to Philippine GDP quickening to within the government’s goal this year and the next as the impact of the BSP’s moves to support consumption and capital formation surface.
• While the lagged effects of monetary easing materialize, BSP is not yet done boosting growth. We expect the easing cycle to continue, beginning at the next rate-setting meeting in February.
• Inflation will remain target-consistent over the policy horizon but geopolitical and weather, as usual, pose upside risks.
• The pace of Fed’s rate cuts will likely be more moderate.
• The strength of the dollar and peso seasonality backs our view that the USD/PHP spot will end at 57.9 in 2025 and 56.5 in 2026.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)

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