With inflation remaining within the government's target range and economic growth slowing, private sector economists expect that the Bangko Sentral ng Pilipinas (BSP) will further reduce its borrowing cost at its Dec. 19 meeting.
According to the Bank of the Philippine Islands (BPI) and think tanks Capital Economics and ING, the central bank may proceed with a 25 basis point (bps) reduction in its key policy rates during the Monetary Board's (MB) final meeting of the year.
The central bank initiated its policy easing cycle in August, cutting rates to 6.25 percent, followed by another 25 bps cut in October after holding them at 6.5 percent since October 2023.
As expectations for a further rate cut grow, the upcoming BSP move could mark the third reduction this year, bringing the key interest rate to 5.75 percent.
BPI senior vice president and chief economist Emilio S. Neri, Jr. stated that he now anticipates a 25 bps cut, a shift from his previous projections.
"While a pause (or skip) remains possible, recent economic data and external developments have aligned in favor of monetary easing," Neri said, citing the supportive inflation outlook for 2025.
Neri pointed out that although consumer prices rose at a faster pace in November, inflation stayed within the target range, as declining rice prices helped offset typhoon-driven price hikes.
November inflation registered at 2.5 percent, comfortably within the government's two percent to four percent target band.
He also noted that the country's recent gross domestic product (GDP) growth rate of 5.2 percent, down from 6.4 percent, has fallen short of both government and analyst expectations, increasing pressure on government officials to implement a rate cut, particularly in anticipation of the midterm elections.
"As for external factors, the more stable performance of the peso against the US dollar over the last couple of weeks may alleviate concerns about the transmission of exchange rate fluctuations to overall price behavior," he added.
Neri also suggested that MB members "may be less worried about reducing rates prematurely" given the high likelihood of the US Federal Reserve lowering its rates by 25 bps on Dec. 18, the day before the MB meeting.
Capital Economics senior Asia economist Gareth Leather echoed Neri's view on manageable inflation.
He noted that the country's inflation rate accelerated last month, "but the big picture is that it sits comfortably within the BSP’s [two- to four-percent] target range."
Leather asserted that while third-quarter GDP growth picked up due to increased consumer spending, he "doubts this pace of economic growth is sustainable."
"Our forecast is that growth will slow over the coming months due to a combination of weaker export demand and tighter fiscal policy," he added.
Future cuts
Leather anticipates that these growth and inflation trends will continue, potentially influencing the MB's decision to further cut policy rates by 100 bps next year, bringing the policy rate to 4.75 percent.
“If President Donald Trump delivers on his campaign promises of massive tariffs and deportation, higher US inflation could translate to slower US rate cuts, if not outright policy reversals,” Neri said.
If conditions worsen, global central banks, including the BSP, might adopt tighter monetary policies to control inflation and safeguard their economies.