THE BANGKO SENTRAL ng Pilipinas (BSP) is anticipated to reduce benchmark interest rates further this year to bolster the economy amid a tenuous global landscape as inflation continues to decline.
ING Bank predicts that the BSP will lower borrowing costs by 75 basis points (bps) more, according to its report.
“A less-than-anticipated inflation path, a stronger-than-predicted local currency, and elevated real rates — alongside uncertainties in global growth — all imply a more significant rate cut cycle,” remarked ING Bank’s economic team.
“We now foresee that the policy rate will hit 4.75% by year-end, which should temper peso appreciation.”
In contrast, Bank of America (BofA) Global Research noted in a different report that it expects the central bank to implement two additional cuts in the upcoming months.
“We believe the BSP will reduce its policy rate by at least 50 bps more for the remainder of 2025, with the next cut likely occurring on its June 19 meeting,” it indicated.
“The Bangko Sentral ng Pilipinas has reverted to an easing stance, as policy and growth outlook have become clearer. Economic growth (GDP) in the Philippines continues to remain sluggish, and with decreasing oil and rice prices, inflation is expected to remain low for an extended duration, giving the BSP the flexibility to ease further,” BofA Global Research concluded. “With the current policy rate at 5.5%, the monetary policy posture now appears constrictive.”
It anticipates the Philippine economy to grow by 5.5% this year and 5.6% in 2026, both falling short of the government’s 6-8% growth target for those years.
The Philippine GDP increased by 5.4% in Q1, slightly surpassing the 5.3% rise from the previous three-month period but slower than the 5.9% rate in the same quarter last year.
Department of Economy, Planning, and Development Undersecretary Rosemarie G. Edillon stated that GDP must expand by at least 6.2% in the remaining three quarters to achieve a 6% growth — the lower end of the government’s 6-8% growth objective — by yearend.
BofA Global Research noted that most central banks in the Association of Southeast Asian Nations (ASEAN) region have implemented rate cuts this quarter, resuming their easing patterns following the “increased uncertainty” earlier in the year.
“We anticipate this trend to persist, as relative stability in financial markets paired with a slight easing of trade risks offers a window for ASEAN central banks to reduce rates further.”
Last month, the Monetary Board reduced benchmark interest rates by 25 bps to 5.5%, realigning its rate-cut cycle after an unanticipated pause in February as officials considered the potential impact of widespread uncertainty resulting from the Trump administration’s fluctuating trade policies on the Philippine economy.
The BSP has now decreased borrowing costs by 100 bps since initiating its easing cycle in August of the previous year.
Last week, BSP Governor Eli M. Remolona, Jr. mentioned that the Monetary Board might enact two additional 25-bp reductions this year, with the next decrease possible as soon as next month’s meeting.
The BSP chief noted that diminishing inflation provides them “ample space” to further relax their policy stance, although they are cautious not to cut “excessively” as it could reignite price increases.
Following the June 19 review, the remaining meetings of the Monetary Board are scheduled for August, October, and December.
Meanwhile, ING mentioned that the peso might weaken once more in the coming months after its recent rise, as market risks due to global trade developments could impact the economy.
“While the Philippines is primarily a domestic demand-driven economy, tariffs and the global trade downturn are likely to negatively affect export growth and BPO (business process outsourcing) activities in 2025,” it stated.
“Balance of payments (BoP) weaknesses persisted into the first quarter of 2025. Hence, we expect the PHP to demonstrate a mild depreciation tendency,” it added. “However, this perspective could be influenced by further dollar weakening and remarks from the BSP indicating limited intervention to moderate peso strength in such circumstances.”
The central bank previously mentioned it generally refrains from intervening in the foreign exchange market and only does so in “minor amounts” as necessary to prevent speculation and maintain market order.
The peso has been trading around the P55 threshold this month due to widespread dollar weakness after fluctuating between the P57-P58 range for a significant part of the first quarter, impacted by Mr. Trump’s policy announcements following his return to the White House in January, which unsettled global financial markets.
The local currency last week approached near two-year highs as the dollar faced pressure after Moody’s Ratings downgraded the United States’ triple-A credit rating, though it has since weakened.
On Thursday, the peso closed at P55.73 against the US dollar, down by 25.5 centavos from Wednesday’s finish, after a US court ruling blocked most of Mr. Trump’s “Liberation Day” reciprocal tariffs announced in April, which boosted the dollar.
Year-to-date, the peso is still up by P2.115 or 3.8% compared to its end-2024 close of P57.845. — Luisa Maria Jacinta C. Jocson
