75 bps more: Economists expect substantial BSP rate cuts in 2025 as easing resumes

1 week ago 9

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With the Bangko Sentral ng Pilipinas (BSP) resuming cuts on borrowing costs, private-sector economists expect the central bank to slash the key interest rate by an additional three-quarter point by the end of 2025.

This followed the Monetary Board’s (MB) decision to reduce the policy rate by 25 basis points (bps) to 5.5 percent, from 5.75 percent previously, even as BSP Governor Eli M. Remolona Jr. gave no indication of the magnitude of cuts the MB would deliver this year.

Miguel Chanco, chief emerging Asia economist at the think tank Pantheon Macroeconomics, said that the MB—the BSP’s highest policy-making body—has “clearly turned more dovish” with its latest move.

The BSP’s rate cut is seen supporting Philippine growth amid global headwinds such as the United States’ (US) tariffs, which the central bank said earlier could slow global gross domestic product (GDP) growth and pose risks to the local economy.

Chanco argued that the BSP’s decision was in favor of the think tank’s call for 75 bps in further cuts to settle the key borrowing rate at 4.75 percent by year-end. He also noted that his expectation is above consensus, as the market recently projected a total of only 50-bp cut in 2025.

Meanwhile, he asserted that “the BSP’s more dovish tilt is long overdue, delayed by its arguably overly pessimistic [inflation] forecasts.”

The BSP has revised its inflation forecast for 2025 downward, lowering it to 2.3 percent from 3.5 percent, given that the most recent inflation figure in March fell below the government’s target band of manageable annual price hikes of two to four percent.

Remolona earlier said that the more manageable inflation outlook and risks to the local economy allowed them to shift towards a more accommodative stance, which, to Chanco, sounds “more committed than the previous shift to less restrictive policy settings.”

Remolona also said the central bank “contemplates” more cuts throughout the year, although he couldn’t specify how many and by how much. He added that the BSP is proceeding cautiously, with 25-bp cuts at a time, but not necessarily at every meeting.

Additional 75 bps

Think tank Capital Economics and Singapore-based United Overseas Bank (UOB) likewise expect the central bank to slash rates further by 75 bps, matching the expectation of Pantheon Macroeconomics.

Capital Economics assistant economist Joe Maher said this would be supported by soft inflation and tariff uncertainty, especially the sweeping tariffs that US President Donald Trump imposed on the biggest economy’s trading partners, including a 17-percent reciprocal tariff on Philippine imports.

“We expect a combination of easing food price inflation and lower transport price inflation to keep inflation contained over the coming months,” Maher said, noting that with inflation remaining under control, the BSP “will loosen policy further over the coming months and by a bit more than most analysts expect.”

UOB senior economist Julia Goh and economist Loke Siew Ting revised their interest rate forecast after taking into account the BSP’s “latest forward guidance, increased expectations for more US Federal Reserve (Fed) rate cuts after the reciprocal tariff announcement, as well as prolonged uncertainties surrounding the global trade war.”

Shifting from just one quarter-point cut to 5.5 percent for the year, UOB now sees a total of 100 bps for the year, despite US President Donald Trump’s announcement of a 90-day pause on higher tariffs for all nations, except for China.

Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort noted the Fed and BSP officials are taking a cautious approach before making further rate cuts. This comes as both central banks still monitor the potential inflation impact of higher US import tariffs going forward.