German financial services giant Deutsche Bank said that investment growth in the Philippines will likely remain constrained in the near term despite the upcoming easing of the central bank’s restrictive policies.

In its Asia Macro Insights report published on Monday, Aug. 26, Deutsche Bank Research projected that reductions in key policy rates would take about four quarters to noticeably influence investment growth.

For this reason, the bank expects that the Philippine economy, as measured by gross domestic product (GDP), will grow at a slower pace than the government’s target range of 6.0 percent to 7.0 percent.

“Our forecast for 2024 GDP growth is thus 5.8 percent (2023: 5.5 percent), but we expect slightly slower growth at 5.6 percent in 2025 as the effects of tight monetary policy continue[s] to weigh on private economic activity in the near term,” the bank said.

Last week, the Bangko Sentral ng Pilipinas (BSP) reduced policy rates by 25 basis points, marking the first cut in nearly four years.

Deutsche Bank expects an additional 25 basis point reduction in October before concluding 2024.

“Nonetheless, this lag could be shortened going forward: while RRR [reserve requirement ratio] was not discussed in August’s MB [Monetary Board] meeting, Governor [Eli] Remolona said that it could be substantially cut in the coming meetings,” Deutsche Bank.

The policy rates lag effect refers to the delay between changes in interest rates and their effects on the economy, as businesses and consumers take time to adjust their spending and investment.

Meanwhile, the RRR is the percentage of deposits that the BSP mandates banks to retain as cash rather than lending out.

After last week's MB meeting, the central bank chief indicated their planned "calibrated" shift toward easier monetary policy, implying that the easing cycle will be gradual.

However, Remolona did not dismiss the possibility of a further 25-basis point reduction at the upcoming October or December policy meetings.

However, Finance Secretary Ralph Recto, who represents President Marcos' Cabinet in the seven-member MB, has been pushing for an early rate cut.

Recto said the government needs to secure funding at a lower cost to quickly address maturing debts, including those incurred during the pandemic that were inherited from the previous Duterte administration.