The Bangko Sentral ng Pilipinas (BSP) is seen cutting interest rates for two consecutive policy meetings as inflation falls to below-target levels, according to Deutsche Bank Research.

In a May 31 report emailed on Monday, June 2, Deutsche Bank Research forecast headline inflation in May at 1.5 percent, remaining below the targeted two- to four-percent band of manageable annual price increases conducive to economic growth. The Philippine Statistics Authority (PSA) will release the consumer price index (CPI) inflation report on Thursday, June 5.

"Rice prices are likely to remain low amid a global supply glut and the rollout of ₱20-per-kilogram subsidized rice, as well as the June 2024 reduction in rice tariffs which would continue to work its way through," it said.

Domestic fuel prices are also projected to drop alongside downward global oil price movements, it added.

For Deutsche Bank Research, "below-target inflation and weaker-than-expected growth pave the way for the BSP's next 25-basis point (bp) rate cut in the June meeting." Philippine gross domestic product (GDP) grew by a disappointing 5.4 percent in the first quarter of 2025.

The Monetary Board (MB), the BSP's highest policy-making body, will next decide on the monetary policy stance on June 19. It is widely expected to cut key interest rates again after resuming the easing cycle in April, when it reduced the policy rate by 25 bps to the current 5.5 percent.

In a May 27 report obtained by Manila Bulletin, Deutsche Bank Research economist Junjie Huang forecast 25 bps each of interest rate cuts at the MB's June and Aug. 28 policy meetings, citing BSP Governor Eli M. Remolona Jr.'s recent pronouncements of "maybe two more cuts" before the year ends.

"To be sure, we had only expected two more cuts in the BSP's current easing cycle with the terminal rate at five percent. Our view was on the premise that the BSP would prefer to maintain a sufficiently positive interest rate differential vis-à-vis the Fed. The differential would be [approximately] 0.6 percent as the policy rate approaches five percent, assuming the FFR [federal funds rate] remains unchanged, making it the narrowest in recent periods," Huang explained.

While Remolona had said the upcoming interest rate reductions would "not necessarily be consecutive," Huang believes the BSP chief "likely referred to concerns around currency volatility and the pass-through to inflation."

"That is, if conditions were volatile then the rate cut in that month may be postponed. However, the risk of breaching the BSP's upper-end inflation target remains limited," Huang said.

Deutsche Bank Research had slashed its full-year 2025 inflation forecast for the Philippines to 1.9 percent from 2.4 percent previously, amid low rice prices plus falling oil costs.

As for Remolona's plan to designate a point target for inflation, instead of the current practice of providing a range, starting next year—supposedly to avoid sending mixed signals about price increase tolerance to the market—Huang said: "To be fair, we think that the BSP at present has been fairly clear in its policy communication and intent."