THE BANGKO SENTRAL ng Pilipinas (BSP) might reduce the benchmark interest rates by 75 basis points (bps) in 2025, Finance Secretary Ralph G. Recto stated.
Mr. Recto, who had previously anticipated a total of 100 bps reductions in 2025, informed journalists that the pace of reductions will be influenced by various elements, including inflation and the subsequent actions of the US Federal Reserve.
“It also hinges on what transpires, what actions the Fed takes. Therefore, we have to wait for the inflation statistics, wait for the Fed’s moves, I suppose. But generally, my expectation is 75 bps,” he remarked.
Earlier, BSP Governor Eli M. Remolona, Jr. indicated that the Monetary Board might implement rate cuts in the 100-bp range for the upcoming year.
On Wednesday, it was anticipated that the US Federal Reserve would lower rates by 25 bps, which would adjust the policy rate to the 4.25%-4.5% range. However, the pace of the Fed’s easing cycle remains unpredictable as US President-elect Donald J. Trump takes office in January.
Philippine headline inflation was recorded at 2.5% in November, resulting in an 11-month average of 3.2%. This figure remains comfortably within the BSP’s 2-4% target range.
Mr. Recto, also a member of the Monetary Board, mentioned that there is a “significant chance” that the central bank might execute a third consecutive 25-bp cut in its final policy meeting for the year occurring today (Dec. 19).
“There is a significant chance, [and] likelihood. I concur with the market consensus of a 25-bp (reduction),” Mr. Recto expressed.
A BusinessWorld survey conducted last week revealed that 13 out of 16 analysts expect the Monetary Board to decrease the target reverse repurchase rate by 25 bps in today’s meeting.
If this occurs, it would lower the benchmark rate to 5.75% from the existing 6%, representing a total reduction of 75 bps by the end of 2024.
Should the BSP implement another 75 bps in cuts next year, it would reduce the key rate to 5% in 2025.
The central bank initiated its easing cycle in August with a 25-bp cut and implemented another 25-bp reduction in October.
In a related report, Capital Economics projected up to 100 bps worth of rate reductions in 2025.
“With growth expected to moderate and inflation likely to remain subdued, we foresee an additional 100 bps of cuts in 2025. This will bring the policy rate to 4.75% by the end of 2025,” they noted in a report issued on Dec. 13.
Capital Economics remarked that the durability of gross domestic product (GDP) growth is “unlikely to persist.”
Economic officials adjusted their GDP target earlier this month to 6-6.5% for this year, from a prior expectation of 6-7% after lackluster third-quarter growth.
The economy experienced a year-on-year growth of 5.2% in the July-to-September quarter, marking the slowest growth in five quarters or since the 4.3% expansion in the second quarter of 2023.
Over the first nine months of the year, Philippine GDP growth averaged 5.8%, lagging behind the 6% figure from a year earlier.
“Consumption is anticipated to benefit from the decline in inflation and further interest rate cuts, but we doubt the sustainability of consumption growth in Q3. Furthermore, growth in remittances and exports will decelerate due to weaker global growth,” Capital Economics stated.
They predict inflation to stay low in the upcoming quarters “as a result of a combination of weaker economic expansion and a decrease in food inflation.”
The central bank forecasts inflation to stabilize at 3.1% for this year. — A.R.A. Inosante