6 days ago
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Lingering uncertainty among consumers and businesses in the Philippines can be addressed by lower interest rates, according to the research arm of German financial giant Deutsche Bank.
"On our Manila trip last week, we found that local sentiment remains highly uncertain," Deutsche Bank Research said in a March 7 report.
As such, "we see the need for the BSP [Bangko Sentral ng Pilipinas] to continue its monetary policy easing to support economic activity, and proactive fiscal policy to moderate the negative impact of uncertainty on households and businesses," it said.
Deutsche Bank has forecasted a total of 50 basis points (bps) in BSP interest rate cuts this year. The policy rate stands at 5.75 percent.
It noted that the decline in February core inflation, which does not include volatile food and energy prices, by 0.2 percentage point to 2.4 percent was "hinting at possible softening of consumer demand."
Core inflation typically reflects underlying long-term price increases.
Headline inflation fell to a five-month low of 2.1 percent last month, below expectations, as prices of the Filipino staple rice dropped.
In a separate report, MUFG Bank Ltd. said it "[continues] to expect the BSP to cut rates by 75 bps in 2025, even as the exact timing is likely to be delayed."
"The Philippines' central bank has also been somewhat more hawkish than we anticipated, opting to keep policy rates on hold and raising its risk-adjusted inflation forecasts slightly," the Japanese banking giant said, referring to last month's pause from monetary policy easing.
"Nonetheless, [the BSP] still kept a growth-supportive bias by cutting the RRR [reserve requirement ratio] by 200 bps," it added.
The upcoming reduction in bank reserves, which will take effect before this month ends, is expected by MUFG to unleash about ₱280 billion of liquidity or 1.6 percent of the domestic banking system's total deposits.
"Beyond lowering the rate structure, this move could improve banking system intermediation, given that reserve requirements are not remunerated in the Philippines," MUFG said.
The "delayed" policy rate cuts, meanwhile, would weaken the peso to ₱59:$1 in the first quarter before appreciating to ₱58.2 against the US dollar before year-end, it forecasted.
The local currency nonetheless strengthened versus the greenback last week, nearing the ₱56 level.
"In line with our view that the Philippine peso has some space to outperform amid tariff tensions, [the currency] has been thus far quite resilient to trade and tariff tensions," MUFG noted.
A peso that's insulated from Trump 2.0 tariffs would allow it to outperform the Chinese yuan and South Korean won, according to MUFG.
