More BSP interest rate cuts as 5-year low inflation seen in 2025

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Inflation would likely fall to a five-year low in 2025, providing policy space for more interest rate cuts supportive of economic growth, according to the think tank Capital Economics.

"We expect GDP [gross domestic product] growth in the Philippines to remain relatively strong in 2025, helped by policy loosening from the central bank," Capital Economics senior Asia economist Gareth Leather said in an April 30 report.

Capital Economics forecasts Philippine GDP expansion of six percent this year—at the lower end of the government's more ambitious six- to eight-percent target, after last year's below-expectations 5.7 percent.

The think tank's expectation of faster Philippine growth in 2025 would buck the trend of slowing down by "a little" for most Asian countries.

"We expect weak economic growth and falling food price inflation to keep headline and core inflation across Asia low," said Leather.

Capital Economics' Gareth Leather

In particular, "inflation in the Philippines is likely to stay in the bottom half of the BSP's [Bangko Sentral ng Pilipinas'] two- to four-percent target range this year," he said.

If his projection proves correct, headline inflation below three percent would be the lowest in at least five years, or since the 2.4-percent annual rate of consumer price hikes recorded in 2020 at the height of the Covid-19 pandemic.

As of the end of the first quarter, inflation averaged 2.2 percent, following a drop in the monthly rate to a nearly five-year low of 1.8 percent in March.

The BSP projected inflation between 1.3 percent and 2.1 percent for April, suggesting a likely headline rate below two percent for a second straight month.

The BSP had also lowered its full-year inflation forecast to 2.3 percent from 3.5 percent previously.

"With inflation set to stay low, we expect more [BSP] easing before the end of the year," Leather said.

Capital Economics expects the BSP to cut interest rates by another 75 basis points (bps), after the policy-making Monetary Board (MB) resumed the central bank's monetary policy easing cycle and reduced the key borrowing rate by 25 bps to 5.5 percent.

In a separate report obtained by Manila Bulletin, Goldman Sachs Economics Research said it expects another 50 bps of BSP rate cuts, to end the year with a five-percent policy rate.

"However, risks to our forecasts are skewed in a dovish direction given downside risks to growth from higher tariffs, still high global trade policy uncertainty and weaker growth in key trade partners," the research arm of investment banking giant Goldman Sachs said.

In an April 30 report, the Washington-based Institute of International Finance (IIF) said that Asian central banks have room to front-load their rate cuts ahead of the US Federal Reserve, which is seen lowering rates by July.

"As concerns over global growth become more acute following the April 2, 2025 tariff announcement, monetary policy easing will play an important role in emerging economies to help support growth," IIF deputy chief economist Ashok Bhundia said.