The Bangko Sentral ng Pilipinas (BSP) is expected to continue its easing cycle this year, though fewer rate cuts are anticipated following signals from the U.S. Federal Reserve about slowing its own rate cuts, according to BMI, a unit of Fitch Solutions.
“The BSP is still on track to deliver another 25-basis-point cut at its next meeting. However, the overall pace of easing will likely slow, influenced by a more hawkish Fed,” BMI noted in its commentary on Thursday.
“We expect the BSP to frontload rate cuts to stimulate the economy, but its ability to loosen policy further is limited,” the report continued.
Last year, the BSP’s Monetary Board lowered policy rates by 75 basis points, reducing the benchmark rate to 5.75 percent from 6.50 percent. BMI forecasts that the BSP will implement another 75 basis points in rate cuts this year.
“Policy loosening will persist, but it will be spread over a longer period. We still expect the terminal rate to be around 4.50%, but it’s unlikely to be reached in 2025. We anticipate 75 bps of cuts this year, with 50 bps in the first half and the remaining 25 bps in the second half,” BMI said.
The main limitation, according to BMI, is the U.S. Federal Reserve’s stance. The Fed has indicated fewer rate cuts for this year, particularly after the potential return of Donald Trump to the White House.
“The Fed has adjusted its projections for rate cuts, with expectations now set for 100 basis points in 2025, down from an earlier forecast of 150 bps,” BMI stated.
As with last year, BMI expects the BSP to reduce rates ahead of the Fed, though this decision contributed to a weaker peso following the BSP’s December rate cut, which saw the peso reach 59 to the U.S. dollar.
“While the peso has slightly recovered to P58.00/USD, it would have been weaker without BSP intervention to reduce market volatility. The broader issue is that the BSP lacks the room to cut rates significantly more than the Fed while maintaining external stability,” BMI added.
In terms of inflation, BMI anticipates it will remain within the government’s target range of 2 to 4 percent for 2025.
“The BSP faces little concern over inflation. While price pressures may increase in the coming months, inflation should remain within the target range unless external shocks occur,” BMI noted.
BSP Governor Eli Remolona Jr. emphasized that the BSP’s monetary policy decisions are based on domestic data, not just the Fed’s actions.
“We don’t make monetary policy decisions based solely on the Fed’s moves. We consider our own data, and the Fed’s actions are just one factor in our analysis,” Remolona said during a Rotary Club event in Makati on Thursday.
Remolona noted that with headline inflation at 2.9 percent and core inflation at 2.8 percent in December, the Philippine economy is “in good shape and better prepared to face challenges ahead.”
He acknowledged potential risks, particularly with U.S. President-elect Donald Trump’s proposed tariffs, which could have an impact on global trade and the Philippine economy.
“The challenges will stem from the uncertainty about Mr. Trump’s actions. He has threatened tariffs and other measures that could lead to retaliation and disrupt the U.S. labor force, which could also affect our economy,” Remolona said.
“However, we are better positioned than many countries because a large part of our trade is in services, including BPO and remittances, which are less susceptible to tariffs. While our services trade should remain stable, there are concerns about our goods trade,” he added.