ANALYSTS are split regarding the Philippine central bank’s easing strategy for the remainder of 2025, as a rising conflict in the Middle East and surging oil prices obscure the inflation forecast.
“We still perceive potential for additional policy easing to bolster economic momentum and anticipate another rate reduction of 25 basis points (bps) by the year’s close,” Moody’s Analytics economist Sarah Tan stated in an e-mail.
“Policy easing is also likely to persist into 2026. Monetary easing would benefit the domestic economy amidst a complicated external landscape,” she remarked.
On Thursday, the Bangko Sentral ng Pilipinas (BSP) reduced the target reverse repurchase rate by 25 bps to 5.25% from 5.5%, in response to a moderating inflation outlook and disappointing first-quarter economic growth.
BSP Governor Eli M. Remolona, Jr. indicated on Friday that a rate cut in August is possible depending on forthcoming data and further escalation of the conflict in the Middle East.
“We might implement another rate cut in August or opt to pause and execute a reduction in October instead. That’s one scenario. However, we’re monitoring the data daily and will decide in August on the next step,” he stated during an interview with CNBC.
The remaining policy meetings of the Monetary Board for this year are set for Aug. 28, Oct. 9, and Dec. 11.
Deutsche Bank Research also anticipates the BSP to lower rates by 25 bps in August.
“Our expectation for one additional 25-bp rate reduction in August stands firm, as we believe annual inflation will likely hover near the lower boundary of BSP’s 2-4% target, barring any escalations in the Middle East conflict,” it stated in a note.
Ms. Tan indicated that the BSP’s policy perspective has become “slightly more pessimistic” because of the intensifying conflict in the Middle East and uncertainties stemming from the Trump administration’s trade strategies.
“Political instability across significant oil-producing nations leaves the market susceptible to unexpected shocks. This might drive up global oil prices, which poses a concern for the Philippines given its substantial dependency on imported oil. This could generate upward price pressures in the domestic market and risks devaluing the peso,” she explained.
Nevertheless, Moody’s Analytics does not foresee inflation surpassing the central bank’s 2-4% target this year. The BSP expects inflation to average 1.6% this year, 3.4% in 2026, and 3.3% in 2027.
Conversely, ANZ Research and Nomura Global Markets Research suggest the BSP may implement two additional rate reductions this year.
“Considering the BSP’s inflation forecast of 1.6% for 2025, a terminal rate of 5% would imply that real rates would still remain elevated at 3.4%. Therefore, we anticipate the BSP will have to decrease rates two more times by 25 bps each in Q3 and Q4 2025, resulting in a terminal rate of 4.75%,” ANZ Research noted.
Nomura Global Markets Research expects two 25-bp reductions at the BSP’s meetings in August and October, “primarily supported by the low inflation outcomes anticipated in the upcoming months.”
However, the principal risk to its outlook is the timing of these upcoming cuts, Nomura stated.
“An intensification of the Middle East conflict that is coupled with further oil price hikes may prevent the BSP from cutting rates and instead compel it to maintain the policy rate in the near term,” it added.
“The BSP also emphasized in its policy statement today that the Monetary Board will consistently evaluate the effects of prior monetary policy modifications, which suggests that the BSP might pause if the domestic economy demonstrates signs of improvement in the short term,” Nomura concluded.
Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. stated in a report dated June 19 that while a rate reduction remains possible this year, the central bank should proceed with caution, as an overly aggressive easing cycle could render the economy susceptible to abrupt rate hikes by the US Federal Reserve.
He further mentioned that the Monetary Board’s easing cycle could be interrupted if the Middle East conflict escalates further.
“Managing inflation should remain the foremost priority, as high inflation has been the primary cause of the slowdown in GDP growth — even more than the current interest rate levels. Maintaining stable inflation, even without additional cuts, is likely to invigorate the economy. A resurgence in inflation, even with rate cuts, could hinder growth once more,” Mr. Neri stated.
PAUSE
In the meantime, some analysts indicated that the BSP may suspend its easing cycle for the remainder of the year.
“Developments in commodity markets, global demand, and trade tensions are currently the most significant risk factors influencing inflation and thus the BSP’s easing trajectory,” Fitch Ratings’ Asia-Pacific Sovereigns Director Krisjanis Krustins mentioned in an e-mail.
Mr. Krustins anticipated no further rate reductions by the BSP this year. He predicted that the BSP would likely resume easing with a 25-bp cut in 2026, bringing the rate down to 5%.
“This would suggest a relatively minimal differential between the Philippines and the US concerning policy rates, compared to the historical context,” he remarked.
Mr. Remolona indicated on Friday that the interest rate gap between the Fed and the BSP could shrink to 50 bps.
Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion noted that the BSP would likely pause at its Aug. 28 meeting, as the central bank will first assess the implications of its cumulative rate cuts along with the reduction of banks’ reserve requirement ratio (RRR).
“We believe this evaluation will concentrate on transmission lags and the current high real interest rate environment to ascertain if further easing is justified,” he explained.
On March 28, the BSP reduced the RRR of universal and commercial banks as well as nonbank financial institutions with quasi-banking roles by 200 bps to 5%. The RRR for digital banks was also decreased by 150 bps to 2.5%, while the ratio for thrift lenders was lowered by 100 bps to 0%.
Mr. Asuncion predicted that the BSP could lower the target reverse repurchase rate down to 3% to 3.5% before pausing, aligning with pre-pandemic levels and the central bank’s inflation objective. — A.M.C. Sy
