Moody’s Analytics is projecting that the Bangko Sentral ng Pilipinas (BSP) will further reduce its key interest rate by another 25 basis points (bps) in December.
According to Moody’s Analytics, this forecast is based on the country's continued low inflation rates and stable price pressures.
“The Monetary Board (MB) is convinced that domestic price pressures are manageable and that inflation expectations are anchored,” Moody’s Analytics said.
Last August, the BSP lowered its key borrowing rates by 25 bps to kick start an easing cycle for the first time in nearly four years, making it one of the first central banks in Asia to begin this “gradual” process.
Two months later, the BSP reduced its benchmark interest rate by another 25 bps to 6.0 percent at its October 2024 policy meeting, citing its evaluation that price pressures were still under control.
Aligning with both Moody’s Analytics’ and overall market expectations, this move marked the second consecutive rate cut for the cycle.
Notably, the country's annual inflation rate significantly dropped to 1.9 percent in September 2024, the lowest level since May 2020.
With this, the central bank has revised its risk-adjusted inflation forecast for 2024 down to 3.1 percent, reducing it from the earlier estimate of 3.3 percent.
However, the bank increased its inflation forecasts for 2025 and 2026 to 3.3 percent and 3.7 percent, respectively, citing possible adjustments in electricity rates and higher minimum wages in areas outside Metro Manila.
At a press briefing last week, BSP Governor Eli Remolona Jr. said a 50-basis-point reduction in December is “unlikely.”
“I think what would make 50 basis points possible would be a scenario in which we see a hard landing. But otherwise, I think that's too aggressive a path,” Remolona said.
Meanwhile, the governor indicated that additional cuts totaling 100 basis points in 2025 would likely be considered "somewhat dovish," suggesting a cautious approach.