1 month ago
9
Economists believe the Bangko Sentral ng Pilipinas (BSP) will cut borrowing rates by 25 basis points as early as its first monetary policy meeting Thursday, Feb. 13, to reinvigorate economic activities and reverse last year’s slower-than-expected growth.
Of the 14 private-sector economists polled by the Manila Bulletin, 11 or the majority of forecasts leaned toward a quarter-point cut, while two economists projected that the central bank will pause at a 5.75 percent rate.
Although think tank Economist Intelligence Unit (EIU) sees there is a “moderately high chance” of another cut, it still expects the BSP to hold the current key interest rates, asserting that this move would allow the central bank to take time assessing the economy after the three consecutive cuts in 2024.
Moody’s Analytics economist Sarah Tan cited external factors to support her forecast. Tan noted that while a sluggish economy last year could justify further reductions in the borrowing costs, she also asserted that “it seems too soon to deliver another rate cut given uncertainties in the global climate.”
On the contrary, Union Bank of the Philippines chief economist Ruben Carlo O. Asuncion argued that to protect the local economy from external risks, it would be ideal to cut the local policy rate by another 25 basis points, bringing it to 5.50 percent.
“Domestic demand needs to be shielded from upcoming offshore headwinds as Trump 2.0 tariff hikes can ignite a global trade war and cause exports to slump,” Asuncion said, referring to the rate cut a proactive way towards all the possibilities associated with the comeback of Trump and his protectionist policies.
“While a quarter point rate cut is not the magic bullet that can slay macro risks, the BSP’s sustained rate action contributes to lower costs of funding and doing business while sowing the seeds for investment-driven growth that can help create jobs and incomes,” he added.
25 basis points
Ten economists gave similar 25-bps cut predictions for the next BSP policy meeting, generally citing reasons such as the “disappointing” economic growth in both the last quarter and entire year of 2024, alongside within-target inflation rate.
These economists and/or think tanks include Aris Dacanay (ASEAN economist at HSBC), Jonathan Ravelas (senior adviser at Reyes Tacandong & Co. and managing director of e-Management for Business and Marketing Services), Patrick M. Ella (economist at Sun Life Investment Management and Trust Corporation),
Euben Paracuelles (chief Asean economist at Nomura), Emilio S. Neri, Jr. [ lead economist at Bank of the Philippine Islands (BPI)], Chinabank Research, Miguel Chanco (chief emerging Asia economist at Pantheon Macroeconomics), Michael Ricafort [chief economist at Rizal Commercial Banking Corp. (RCBC)], Gareth Leather (senior Asia economist at Capital Economics), and Deutsche Bank.
“The BSP has room to trim its policy rate following another disappointing GDP growth estimate of 5.2 percent in the fourth quarter of 2024”—unchanged from the third quarter growth, according to Chanco and Asuncion.
Likewise, Neri said the BSP “might use the slower-than-expected growth last quarter as
the primary justification for the cut, along with a stable inflation environment that allows the central bank to focus more on boosting the economy.”
Paracuelles emphasized tame inflation in particular, placing his confidence in this stability as the major support for the continued easing.
According to Paracuelles, this “will be the main consideration for BSP, not the Fed and the risks from Trump’s policies.” He added that “this should allow the Monetary Board to continue to focus on reducing the restrictiveness of its policy stance to support domestic demand.”
Moreover, although the U.S. Federal Reserve did not change its policy in the previous month, Dacanay believes that “the BSP doesn’t have to follow the same approach.” His position aligns with BSP Governor Eli M. Remolona Jr.’s stance—that while the Fed’s actions influence local policy, the BSP does not simply follow suit.
2025 key policy rate
Dacanay, in particular, expects the BSP to cut by a total of 25 basis points in the first, third, and fourth quarters of 2025, bringing the key interest rates down to five percent. For the second quarter, he sees the central bank holding its policy rates, anticipating instead a 200 basis-point cut in the reserve requirements ratio (RRR), bringing it also to five percent.
Ella predicts a similar three 25-basis-point-cut scheme but the pause is in the third quarter, while the last cut in the fourth quarter would be conditional on the gross domestic product (GDP) expansion this year.
Aside from Dacanay and Ella, Ravelas also gave a total of 75 basis points in cut for the full year, noting that the BSP’s “cautious stance will be key in navigating the geopolitical risks here and abroad.”
On the other hand, Neri, Limlingan, and Tan stand at a more reserved side with the expectation of 50 basis points in total for 2025.
Neri cited the country’s deficit and the risk of deterring investors if the interest rate differential with the Fed narrows. “Interest rates could serve as a key buffer against market volatility.”
Meanwhile, a total of 100 basis points in cut came from Chanco and Leather. This, for Chanco, is the most expected scenario as the policy “remains very, very tight.”
Dacanay added that interest rate risks remain due to uncertainty over how U.S. trade policies could impact the Fed’s outlook.
“As the months roll in, we should have a better understanding of the Trump policies that are causing market uncertainties,” Ella said, noting that the influence of Trump’s return to the BSP easing is “very little.”
“Except that the BSP has to manage some level of market uncertainty driven by an irrational fear of Trump’s return to the U.S. presidency. Otherwise, the BSP is on track to cut rates at its stated cautious ‘baby steps’ pace,” he added.
