Economic think tanks look forward to more interest rate cuts by the Bangko Sentral ng Pilipinas (BSP) following its second-straight 25-basis point (bp) reduction in the policy rate on Wednesday, Oct. 16.

Capital Economics assistant economist Harry Chambers noted in a report that after the BSP again cut its key interest rate to six percent, the central bank "signaled that recent economic data support its shift towards a looser monetary policy stance."

As such, "further gradual loosening lies in store in the coming quarters," Chambers said.

Capital Economics earlier forecasted the BSP to follow-through with another 25-bp cut during the Monetary Board's last policy meeting for 2024 on Dec. 19, to end this year with an overnight borrowing rate of 5.75 percent.

The think tank had projected the policy rate to further drop to 4.75 percent by end-2025, or a total of 100-bp cut next year, a more dovish forecast compared to consensus expectations, Chambers noted.

"The economic backdrop provides scope for looser monetary conditions. Gross domestic product (GDP) growth slowed in the second quarter on the back of declines in both private consumption and exports. More recent monthly figures point to a further slowdown in the third quarter," Chambers said.

"We expect growth to remain subdued on the back of a combination of tighter fiscal policy and weak export demand," he added.

Easy monetary policy would be supported by "weak" inflationary pressures foreseen in the near term, he said.

"In the BSP's press conference, Governor Eli Remolona Jr. noted that 'price pressures remain manageable.' He admitted that the risks to its inflation forecast now lie 'to the upside,' but the [BSP] still forecasts inflation to stay within the target range over the coming years. That echoes our own view: falling food price inflation and slower growth should keep a lid on inflation," Chambers pointed out.

In a separate report, Oxford Economics lead economist Sunny Liu agreed that headline inflation would sustain its fall, "especially since India has lifted restrictions on non-basmati white rice exports." Upward rice prices early this year contributed to the past elevated inflation episode, such that the government slashed import tariffs to bring down domestic prices of the Filipino staple food.

Alongside lower interest rates, Liu expects the Philippine peso to sustain its recent depreciation moving forward.

The latest BSP rate cut "increases the risk of a weaker currency, which has been under pressure since the start of the month," Liu said, citing that "during the first half of October, the peso depreciated by three percent against the US dollar, as concerns over the US growth outlook eased driven by positive news out of the September jobs report."

Just like Chambers, Liu forecasted another 25-bp overnight reverse repurchase rate reduction in December even as "upside risks to prices -- potentially driven by higher electricity prices -- could constrain the pace of the BSP's rate cuts particularly in 2025."

Since the BSP began its monetary easing cycle in August -- ahead of the US Federal Reserve, Liu said this latest policy-stance decision, "again ahead of the Fed's move, signals some independence of its monetary policy, and echoed the earlier statement that Governor Remolona made, that 'the BSP takes a data-driven approach to policy-making... The timing of the FOMC's actions did not play much of a role in our decision.'"