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The Economist Intelligence Unit (EIU) expects the Bangko Sentral ng Pilipinas (BSP) to cut key interest rates by an additional 100 basis points (bps) for the remainder of 2025 to arrest potentially slower economic growth as a result of the intensifying global trade war.
"The BSP has room to maneuver in its policy stance, given the benign inflation outlook," Alex Holmes, EIU's Asia-Pacific regional director, said in an April 11 report obtained by Manila Bulletin.
EIU noted that first-quarter inflation averaged 2.3 percent, down from 2.6 percent in the previous quarter, as the March headline rate slid to an almost five-year low of 1.8 percent.
As such, the Monetary Board (BSP)—the BSP's highest policy-making body—lowered the main policy rate by 25 bps to 5.5 percent last April 10, resuming the monetary policy easing cycle that was paused back in February.
The BSP also slashed its full-year 2025 risk-adjusted inflation forecast to 2.3 percent from 3.5 percent previously.
"That will put the BSP in a good position to respond to the worsening global economic outlook following the United States' (US) imposition of wide-ranging tariffs. We now expect the BSP to undertake a total of 100 bps of rate cuts over the rest of 2025, compared to our previous expectation of just 25 bps," EIU said.
EIU had correctly forecast the BSP's February pause and April rate cut.
In particular, EIU sees the BSP cutting the key borrowing rate by another 25 bps at the next MB policy stance meeting on June 19, and then by 25 bps each during the three remaining meetings of the year on Aug. 28, Oct. 9, and Dec. 11.
"That would take the policy rate to 4.5 percent by December, compared with our previous expectation of 5.25 percent. The risks are weighted towards even faster easing, with the potential for 50-bp cuts if the global outlook sours further," EIU said.
"The Philippine economy is more insulated from direct trade tensions than most in the region. Its goods export sector is relatively small and while it faces the baseline tariff of 10 percent, it is not particularly affected by any sectoral tariffs on vehicles or metals. Additionally, the country's main merchandise export, semiconductors, is—for now—exempt," EIU noted.
"However, we doubt that the economy will receive a big boost from trade diversion. The Philippines has not done so in the past, given that its business environment is less attractive than that of regional rivals. Those structural issues will continue to limit it in the race to pick up shifting economic activity," EIU added.
EIU also cautioned that the country is "exposed to the second-round effects of tariffs on the US economy, which we expect will enter a shallow recession."
"That will particularly affect service exports, especially the business process outsourcing (BPO) sector. It also threatens to affect important remittance inflows, with the US being the largest source," EIU warned.
In turn, a US recession could bring to the Philippines not only slower, but also below-target growth next year.
"As such, we expect that the central bank will grow increasingly concerned about the growth outlook over the coming months and shift from a stance of gradually bringing back rates to neutral, to actively aiming to turn policy accommodative," EIU said.
"Taking into account the hit from US tariffs as well as the offset from the policy response, we have revised our real GDP [growth] forecast to 6.1 percent in 2025 and 4.9 percent in 2026, from 6.3 percent and 5.3 percent previously," according to EIU.
The government targets GDP growth of six to eight percent for both this year and next year.
