3 weeks ago
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Amid heightened uncertainties wrought by US President Donald Trump’s tariffs, a cautious Bangko Sentral ng Pilipinas (BSP) is seen to resume policy easing by April at the earliest after last week’s pause.
Think tank Capital Economics said in a Feb. 18 report that rising interest rates in government’s long-term debt and weaker local currencies make it difficult for emerging markets (EMs), like the Philippines, to proceed with further cuts on key borrowing costs.
“High Treasury yields and weaker EM currencies arguably constitute an environment less conducive for monetary easing,” Capital Economics said.
It noted that the BSP, like the central banks of Mexico and South Africa, “all cited concerns over US protectionism at their latest meetings, and other EM central banks may also now tread more carefully with their easing cycles.”
Last week, Capital Economics and other analysts were surprised when the BSP decided to keep key interest rates unchanged at 5.75 percent. The think tank predicted a 25-basis point (bp) cut to 5.5 percent, citing subdued inflation, while other economists cited slower growth performance last year.
“The central bank’s rationale of pausing its easing cycle was clear: it wanted monetary policy to be flexible amidst the uncertainties in global trade,” HSBC ASEAN economist Aris Dacanay said.
Despite the BSP’s move, Capital Economics doubts that the rate hold “marks the end of the central bank’s easing cycle.” BSP Governor Eli M. Remolona Jr. affirmed this stance, clarifying that the central bank remains in an easing cycle.
“We are sticking with our view that the BSP will cut rates by 100 bps between now and the end of the year,” Capital Economics said. This outlook suggests that by the end of 2025, the key interest rates will be down to 4.75 percent, and the think tank predicts the BSP to hold it in 2026.
Meanwhile, Germany-based Deutsche Bank has shifted its rate cut expectations to 25 bps consecutively in April and June meetings—50 bps in total for the first half of 2025. Its previous forecast was a 25-bp cut at last week's policy meeting.
On the other hand, Singapore's DBS Bank has retained its 50-bp cuts forecast for this year.
“After 75-bp rate reduction in 2024, the BSP is likely to bide time to monitor risk of further tariffs and the consequent inflation/ US dollar path, before resuming further easing,” DBS noted.
On the other hand, Singapore-based United Overseas Bank (UOB) has changed its rate cut prediction for this year, expecting just a single 25 bps cut to 5.5 percent rate. It previously predicted three quarter-point cuts, settling to five percent by the end of 2025.
“We think that this 25-bp cut will most likely be in June, in line with our next Fed rate cut expectation,” it said, adding that the BSP’s meeting coincides with that of the US Federal Reserve and its rate cut decision.
UOB’s topmost consideration for this shift is the rising external uncertainty, particularly regarding trade policy that the BSP cited.
To recall, these global uncertainties made it challenging for the BSP to assess its impact on the Philippine economy and inflation. Thus, requiring the Monetary Board “a little bit more time” to recalibrate its policy scheme.
Similarly, Japan’s largest bank MUFG also stands firm in its forecast, citing the negative output gap and continued slowdown of price pressures in the country. Overall, it sees 75 bps in cut, bringing the key borrowing costs down to five percent by the end of the year.
“We see rate cuts as delayed and not denied, and are for now happy to keep our current magnitude of forecasted rate cuts even if the exact timing is pushed out later,” MUFG said.
