HSBC sees another BSP rate cut in October

HSBC economist Aris Dacanay expects the Bangko Sentral ng Pilipinas (BSP) to deliver a third and final policy rate cut for the year this October, trimming its benchmark interest rate by 25 basis points to 5 percent.

This follows back-to-back rate cuts by the BSP’s Monetary Board, including a 25-basis-point reduction last June 20 that brought the reverse repurchase rate to 5.25 percent.

Dacanay, speaking at a media briefing on Thursday, said he remains open to the possibility of further easing should economic growth underperform projections.

“I think the Philippines has room to lower it below 5 percent. So, in other words, risks are to the downside,” he said.

HSBC estimates the country’s full-year GDP growth at 5.4 percent, slightly below the government’s 5.5 to 6.5 percent target range, but still the strongest among Southeast Asian economies. In the first quarter, the Philippine economy grew by 5.4 percent, up from the previous quarter’s 5.3 percent but below the 5.9 percent recorded in the same period last year.

Meanwhile, inflation is expected to average just 1.8 percent in 2025—well below the official forecast range of 2 to 3 percent—giving the central bank more flexibility to adjust policy.

“With inflation low, the BSP has a lot of room to cut rates. So much room that it was able to narrow last week its differential with the Fed (US Federal Reserve) by 75 basis points. And the economy, the financial markets, didn’t react,” Dacanay said.

The 75-basis-point gap between the BSP and Fed policy rates is the smallest since 2022, with the U.S. rate currently ranging between 4.25 and 4.5 percent.

Dacanay also pointed to the Philippines’ relatively low household debt, which stands at around 10 percent of GDP—the lowest among upper middle-income countries in the region.

“So the fact that the Philippines is not as leveraged as anyone else, there’s room to boost the economy monetarily,” he added.