The Bangko Sentral ng Pilipinas' (BSP) monetary policy easing cycle is expected to extend until the first half of 2025, to slash the key interest rate to 4.75 percent, according to the think tank Capital Economics.

"The central bank [BSP] cut interest rates at its August meeting. With growth set to struggle and inflation likely to remain low, further easing is likely over the remainder of this year and in the first half of next year," Capital Economics senior Asia economist Gareth Leather and assistant economist Harry Chambers said in a Sept. 23 report.

Capital Economics forecasted two rate cuts of 25 basis points (bps) each during the BSP Monetary Board's upcoming policy stance meetings in October and December, to end 2024 with a policy rate of 5.75 percent, from 6.25 percent at present.

The overnight borrowing rate is projected by Capital Economics to fall to 4.75 percent by end-2025, which means a total of 100 bps in cuts next year.

After headline inflation slowed to 3.3 percent in August, Capital Economics said the year-on-year rate of increase in prices of basic goods and services would likely "remain subdued over the coming months, helped by a combination of weak growth, beneficial base effects and government efforts to boost the supply of agricultural goods."

The think tank projected inflation to average 3.3 percent this year and further slow to three percent next year, within the government's two- to four-percent target band of manageable price hikes conducive to economic growth.

Despite easing inflation, "we expect the economy to remain weak over the coming quarters," Capital Economics said.

While the Philippines' gross domestic product (GDP) expanded by 6.3 percent year-on-year in the second quarter of this year, April-to-June output grew by only 0.5 percent quarter-on-quarter from first-quarter GDP.

Capital Economics estimated quarter-on-quarter GDP growth to stay beneath 1 percent in the third and fourth quarters of this year, before exceeding 1 percent in each of the four quarters of 2025.

Full-year Philippine GDP growth rates are forecasted by Capital Economics to reach 5.1 percent in 2024 and 5.5 percent next year, below the government's expectations of six to seven percent and 6.5 to 7.5 percent, respectively.

"On the plus side, lower interest rates and falling inflation (which should boost household incomes) should provide some support to consumption. However, this is likely to be offset by slower growth in remittances and weaker export demand," Capital Economics said.

"Fiscal policy is also likely to hold back growth. The government is aiming to reduce government debt, which shot up during the pandemic, to more sustainable levels," the think tank added.

Also, Capital Economics warned that "the worsening relationship between the Philippines and China poses a downside risk to the outlook," referring to territorial tensions in the West Philippine Sea.

"However, the fact that the Philippines is not closely integrated into China’s economy means the fallout should be limited," the think tank said.

Philippine exports to China are equivalent to only over two percent of GDP, among the lowest in the region.