THE Bangko Sentral ng Pilipinas (BSP) possesses “enhanced motivation” to further diminish borrowing expenses, analysts indicated, with anticipations of up to 50 basis points (bps) in rate reductions this year.
“When we analyze our gross domestic product (GDP) statistics and inflation figures, it becomes apparent that there’s a stronger impetus for the central bank to actually decrease rates at this moment,” stated Alexandra G. Yatco, Equity Analyst at Regina Capital Development Corp., during Money Talks with Cathy Yang on One News.
In a report, Bank of America (BofA) Global Research stated it forecasts a total of 50 bps in easing throughout the year.
“We currently predict one 25-bp reduction in the second quarter, followed by another in the fourth quarter, resulting in an overnight borrowing rate of 5.25% by the conclusion of 2025,” it mentioned.
“Central banks within ASEAN (Association of Southeast Asian Nations) have adopted a wait-and-see approach, seeking periodic chances to relax monetary conditions to tackle escalating uncertainty, arising from US trade policy, a steady yet slow China, and declining inflation.”
“Although maintaining the benchmark rate at 5.75% last month amid “global trade uncertainties,” BSP Governor Eli M. Remolona, Jr. asserted that they are still in an easing mode.
He hinted that a rate reduction remains a possibility at the Monetary Board’s next rate-setting conference on April 10.
“With capital exodus dominating capital markets, central banks have increased efforts to inject liquidity into both domestic money markets and foreign exchange markets while tactically lowering policy rates as opportunities arise,” BofA commented.
“We anticipate this trend to persist for some time, especially as real rates stay elevated, growth is lackluster, and currencies face downward pressure.”
BofA expressed that regional central banks will seek to cut rates when the opportunity presents itself, provided it does not disturb domestic and external stability metrics.
“Despite the winding path central banks have elected to pursue, the macroeconomic environment and our baseline forecasts still suggest broadly stable growth rates, low inflation, and stable fiscal conditions,” it added.
BofA predicts Philippine inflation will remain within the central bank’s 2-4% target range. So far, headline inflation has averaged 2.5% in the first couple of months.
“Most importantly, real rates are still high across all economies, providing room to lower rates and ease monetary conditions if necessary,” it concluded.
Meanwhile, BofA stated that ASEAN banks are anticipated to “gradually diverge from the Fed.”
“Consequently, with substantial uncertainty, we foresee ASEAN central banks balancing between global elements such as US policy rates and the (US dollar index), alongside domestic growth and inflation contexts.”
This could render the trajectory of monetary policy “more unpredictable and uncertain, leading to increased policy divergence between the Fed and the ASEAN economies, unlike previous business cycles.”
TARIFF CONCERNS
Simultaneously, BofA also highlighted the possible repercussions from retaliatory tariffs on the Philippines.
“The apprehensions regarding tariffs appear to be impacting the growth aspect more than the inflation side. As export demand diminishes or global trade decelerates, ASEAN economies might face a greater threat of a growth slowdown than an immediate inflationary surge.”
“Hence, economies such as the Philippines and Thailand, where domestic demand has remained inadequate, could encounter further challenges on the external front necessitating a more proactive policy stance,” it stated.
Reuters reported that President Donald J. Trump’s increased tariffs on all US steel and aluminum imports went into effect on Wednesday, intensifying a campaign to restructure global trade in favor of the US and eliciting swift retaliation from Europe. (Related story “Global trade war looms as Trump’s metal tariffs kick in”).
“For the Philippines, the advantage of being a domestic-focused economy and having a less restrictive relationship with the US provides some relief, but tariffs on Philippine exports to the US, particularly if targeting electronics, could reduce its surplus with the US and exacerbate its overall trade deficit.”
The Philippines’ trade-in-goods deficit expanded to $5.09 billion in January, marking the widest deficit in three months. — Luisa Maria Jacinta C. Jocson
