BSP carefully weighs moves as inflation cools in February

March 7, 2025 | 12:00am

MANILA, Philippines — As headline inflation surprises to the downside by hitting 2.1 percent in February, the Bangko Sentral ng Pilipinas (BSP) signaled that it would carefully assess monetary policy adjustments to support economic growth while ensuring price stability.

Headline inflation fell to 2.1 percent in February from 2.9 percent in January, a sharper decline than market expectations and the BSP’s own forecast range of 2.2 to three percent.

This brought the year-to-date average inflation to 2.5 percent, well within the government’s target range of two to four percent.

“The February inflation outturn supports the BSP’s prevailing assessment that inflation will remain within the target range over the policy horizon,” the BSP said in a statement late Wednesday.

“Nonetheless, uncertainty over global economic policies and their potential impact on the domestic economy continue to warrant close monitoring. The BSP will carefully consider all new available information at its upcoming monetary policy meeting on April 3,” it said.

Market analysts see the sharp drop in inflation as a compelling case for the BSP to resume its monetary easing cycle sooner rather than later.

HSBC ASEAN economist Aris Dacanay said the significant slowdown in inflation provides room for a policy rate cut even if the US Federal Reserve does not move in the same direction.

“With inflation finding itself within the lower-end range of the BSP’s target band, there is room for the economy to absorb any forex-induced inflation if the policy rate differential between the BSP and the Fed were to narrow (i.e. the BSP were to cut even if the Fed does not),” he said.

Dacanay also said that given low inflation and headwinds to household consumption, the BSP has room to shift its focus from inflation and exchange rate stability to supporting growth.

He said the BSP could resume its easing cycle at its next policy rate-setting meeting in April due to the lower-than-expected inflation print in February. This is earlier than HSBC’s base case scenario, where they expect the Monetary Board to resume rate cuts in June.

Citi economist for the Philippines Nalin Chutchotitham said the bank revised its inflation forecast to 2.6 percent this year from 3.2 percent previously.

“With February’s inflation print coming in lower than expected, we reiterate our expectation for 25 basis points rate cuts in April, August and December,” Chutchotitham said, adding that “this would bring the real policy rate close to the upper end of the neutral range by end 2025.”