Singapore-based United Overseas Bank (UOB) anticipates the Philippine central bank will lower borrowing costs in December, citing manageable inflation and rising risks to economic growth.

“Monetary policy is well-positioned for what lies ahead,” said Julia Goh, senior economist at executive directorUOB’s Global Economics & Markets Research in a Dec. 5 report.

UOB’s overall inflation expectations remain within Bangko Sentral ng Pilipinas’ (BSP) medium-term inflation target range of two to four percent. Goh suggested that the Monetary Board (MB) could factor this in its succeeding decisions.

“This [manageable inflation] together with rising downside risks to growth prospects going into 2025, could sway policymakers into sustaining a gradual monetary policy easing cycle in the near term,” Goh said.

“As such, we keep our call for a 25 bps cut in the BSP rate at the final meeting of this year (on 19 Dec) and in each quarter of 2025,” the economist reiterated.

Looming threats

Although seen as manageable, Goh cited inflation as among the major factors in the key interest rate reduction anticipated to be carried out during the last MB meeting this year. Thus came a revision of her inflation outlook for the Philippines next year.

“Key wildcards to our inflation outlook in 2025 include potential upward adjustments in electricity rates and minimum wages in areas outside Metro Manila, the passthrough effects of digital tax and PHP [Philippine peso] weakness reignited by Trump’s foreign policy agenda,” Goh said.

The country’s headline inflation rate accelerated for the second straight month in November to 2.5 percent, driven by higher food and non-food prices amid storm-related disruptions and a weaker peso. This brings the average inflation for the first 11 months to 3.2 percent.

Goh said that inflation staying below the central bank’s target range, while economic growth in the third quarter of 2024 slowed more than expected to 5.2 percent year-on-year might “further justify” a 25 basis-point cut in the overnight reverse repurchase (RRP) rate.

If this happens quarterly, it will bring the overnight RRP rate to 5.75 percent by the end of 2024 and 4.75 percent by the end of 2025.

Meanwhile, UOB economist Jasrine Loke, noted in a week-ahead report that the BSP signaled maintaining a “measured approach in its easing cycle to ensure price stability conducive to sustainable economic growth and employment.”

The Philippine Statistics Authority (PSA) recently reported that the employment rate in October rose to 96.1 percent, compared to 95.8 percent in the same period last year.

From 47.79 million employees last year, the workforce expanded to 48.16 million in October, while the number of jobless Filipinos dropped to 1.97 million from 2.09 million a year ago.