ANALYSTS are split regarding the Philippine central bank\u2019s easing strategy for the remainder of 2025, as a rising conflict in the Middle East and surging oil prices obscure the inflation forecast.<\/p>\n
\u201cWe still perceive potential for additional policy easing to bolster economic momentum and anticipate another rate reduction of 25 basis points (bps) by the year\u2019s close,\u201d Moody\u2019s Analytics economist Sarah Tan stated in an e-mail.<\/p>\n
\u201cPolicy easing is also likely to persist into 2026. Monetary easing would benefit the domestic economy amidst a complicated external landscape,\u201d she remarked.<\/p>\n
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.<\/span><\/p>\n 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.<\/p>\n \u201cWe might implement another rate cut in August or opt to pause and execute a reduction in October instead. That\u2019s one scenario. However, we\u2019re monitoring the data daily and will decide in August on the next step,\u201d he stated during an interview with CNBC.<\/span><\/p>\n The remaining policy meetings of the Monetary Board for this year are set for Aug. 28, Oct. 9, and Dec. 11.<\/p>\n Deutsche Bank Research also anticipates the BSP to lower rates by 25 bps in August.<\/p>\n \u201cOur 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\u2019s 2-4% target, barring any escalations in the Middle East conflict,\u201d it stated in a note.<\/span><\/p>\n Ms. Tan indicated that the BSP\u2019s policy perspective has become \u201cslightly more pessimistic\u201d because of the intensifying conflict in the Middle East and uncertainties stemming from the Trump administration\u2019s trade strategies.<\/p>\n \u201cPolitical 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,\u201d she explained.<\/p>\n Nevertheless, Moody\u2019s Analytics does not foresee inflation surpassing the central bank\u2019s 2-4% target this year. The BSP expects inflation to average 1.6% this year, 3.4% in 2026, and 3.3% in 2027.<\/p>\n Conversely, ANZ Research and Nomura Global Markets Research suggest the BSP may implement two additional rate reductions this year.<\/p>\n \u201cConsidering the BSP\u2019s 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%,\u201d ANZ Research noted.<\/p>\n Nomura Global Markets Research expects two 25-bp reductions at the BSP\u2019s meetings in August and October, \u201cprimarily supported by the low inflation outcomes anticipated in the upcoming months.\u201d<\/p>\n However, the principal risk to its outlook is the timing of these upcoming cuts, Nomura stated.<\/p>\n \u201cAn 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,\u201d it added.<\/p>\n \u201cThe 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,\u201d Nomura concluded.<\/span><\/p>\n 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.<\/p>\n He further mentioned that the Monetary Board\u2019s easing cycle could be interrupted if the Middle East conflict escalates further.<\/p>\n \u201cManaging inflation should remain the foremost priority, as high inflation has been the primary cause of the slowdown in GDP growth \u2014 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,\u201d Mr. Neri stated.<\/span><\/p>\n PAUSE \u201cDevelopments in commodity markets, global demand, and trade tensions are currently the most significant risk factors influencing inflation and thus the BSP\u2019s easing trajectory,\u201d Fitch Ratings\u2019 Asia-Pacific Sovereigns Director Krisjanis Krustins mentioned in an e-mail.<\/p>\n 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%.<\/p>\n \u201cThis would suggest a relatively minimal differential between the Philippines and the US concerning policy rates, compared to the historical context,\u201d he remarked.<\/span><\/p>\n
\n<\/b>In the meantime, some analysts indicated that the BSP may suspend its easing cycle for the remainder of the year.<\/p>\n