THE BANGKO SENTRAL ng Pilipinas (BSP) may reduce rates next month, according to its leading official, indicating the potential for easing of up to 75 basis points (bps) throughout the year if economic performance deteriorates further.
“We have been on a loosening trajectory for some time now. We simply took a break,” BSP Governor Eli M. Remolona, Jr. stated to Bloomberg during a televised discussion with Haslinda Amin on Wednesday.
He mentioned that there is an increased probability that the Monetary Board will implement a rate reduction during its policy assessment on April 10, particularly if inflation performs better than anticipated.
Inflation significantly decreased to 2.1% in February, leading to a two-month average of 2.5%. This falls comfortably within the central bank’s 2-4% target.
Data on March inflation will be published on April 4.
Mr. Remolona also indicated the possibility of up to 50 bps worth of rate deductions this year. Nonetheless, if economic output is less robust than expected, the central bank could implement up to 75 bps worth of easing.
The gross domestic product (GDP) of the Philippines expanded by 5.6% in 2024, falling short of the government’s adjusted 6-6.5% target for the year.
In its most recent monetary policy report, the BSP noted that it anticipates economic growth to align with the lower tier of the government’s 6-8% goals from this year until 2026, citing heightened global commodity prices and trade uncertainties.
GDP figures for the first quarter will be announced on May 8.
US RECESSION
Simultaneously, the BSP leader mentioned that although he does not foresee a recession in the United States, a slowdown is “highly probable.”
US President Donald J. Trump has committed to enforcing widespread reciprocal tariffs and supplementary sector-specific tariffs commencing on April 2.
Markets are preparing for the possible effects from inflationary challenges stemming from these tariffs, which could lead the US Federal Reserve to postpone its own easing cycle.
The US central bank decided to maintain interest rates on Wednesday, as anticipated. Fed Chair Jerome H. Powell stated that they are in no rush to make any adjustments amid economic uncertainties.
Mr. Remolona remarked that the tariff dispute would “definitely” have spillover effects on the Philippines.
“The tariff conflict is expected to hinder growth for everyone and subsequently increase inflation for all. The extent of this impact is uncertain. However, the greater concern is the uncertainty itself,” he articulated.
Nevertheless, this would result in a “minimal” impact on the Philippine economy.
“We will be somewhat affected as we are part of a global economy,” Mr. Remolona noted.
ROOM FOR EASING
Meanwhile, the BSP has the capacity to implement further policy loosening amid low inflation, Nomura Global Markets Research indicated.
“Downside risks to growth, subdued inflation, and elevated real rates imply that there is still potential to ease,” Nomura Global Markets Research analysts Sonal Varma and Si Ying Toh outlined in a report.
Nomura anticipates the central bank to reduce rates by 75 bps this year.
“Disinflation is taking place in Asia, with inflation falling within central bank expectations in most nations,” the report noted.
Nomura also expressed expectations for low inflation to persist.
“Core inflation has decreased by 1.2 percentage points compared to six months prior, and it holds the second-highest real policy rate in the region, indicating still-restrictive policy rates,” Nomura stated.
“We predict an additional 75 bp in policy rate cuts, which would bring the policy rate to 5% by the end of 2025.”
At the same time, ANZ Research mentioned that it expects the BSP to cut by 50 bps this year.
“For the remainder of 2025, we foresee another 50 bp of rate reductions in Indonesia, the Philippines, South Korea, and Thailand,” it stated in its most recent quarterly research report.
“In our view, monetary policy will be less effective. The monetary policy in the region has shown a bit more independence from the Fed than we previously anticipated,” it added.
In addition, ANZ projected GDP to grow by 5.7% this year. This would not achieve the government’s 6-8% target for 2025.
It noted that household savings in the Asian region have been underwhelming.
“Savings deficiencies are pronounced in Indonesia and the Philippines, where surveys indicated a decrease in the proportion of income allocated for savings or a decline in the number of households with adequate savings.”
“Households are also becoming more cautious regarding leverage. The Philippines stands out as the sole exception where household borrowing continues to grow at a significant pace. However, given the weak survey outlook on family financial conditions, this lending trend is unlikely to persist long-term.” — Luisa Maria Jacinta C. Jocson with Bloomberg
