With inflation accelerating to its lowest pace in nearly six years in May, private-sector economists expect the Bangko Sentral ng Pilipinas (BSP) to continue reducing key borrowing costs this month.

Inflation slowed further to 1.3 percent in May from 1.4 percent in April, marking the slowest pace since November 2019, according to the Philippine Statistics Authority (PSA). Notably, the poorest households experienced no increase in overall prices.

According to the PSA, the continued easing of inflation in May was mainly due to the slower price movements in the housing, water, electricity, gas and other fuels sub-index. It clocked in at 2.3 percent in May from 2.9 percent in April.

HSBC ASEAN economist Aris Dacanay said in a commentary released on Thursday, June 5, that the latest inflation rate raises the likelihood of the BSP further slashing key interest rates during the upcoming June 19 policy meeting.

“May inflation increases the risk of a June policy rate cut,” Dacanay said, adding that this expectation becomes even more likely because global factors are “keeping a lid on goods and energy prices.”

Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, also said the think tank is maintaining its “below-consensus” expectation that the central bank’s benchmark rate will settle at 4.75 percent by year-end.

This means that Chanco is expecting the BSP to deliver three more quarter-point cuts, “including the next in two weeks’ time” in June.

To date, the BSP has slashed the key policy rate by a total of 100 basis points (bps) or one percent.

As such, the rate has fallen from 6.5 percent before easing began in August last year to the current 5.5 percent. Among the major developments considered in the latest cut was the heightened uncertainties caused by the United States (US)-imposed tariffs.

“The BSP does have the privilege to take a measured approach given how insulated the economy is to any headwind in trade,” Dacanay said.

“However, with inflation floating well-below the BSP’s forecast range, the risk of a policy rate cut in June has substantially increased, more so the first quarter growth surprising to the downside,” he added.

Falling below expectations, Philippine gross domestic product (GDP) expanded by 5.4 percent in the first quarter, slower than the 5.7 percent in the same period last year. This was also significantly short of the government’s growth target of six to eight percent.

For Dacanay, the most likely scenario would be a pause in the BSP’s easing cycle in June, as the central bank “waits for more details regarding the US’ proposed tariff measures.”

Since US President Donald Trump ordered a three-month pause on the across-the-board reciprocal tariffs, the Philippine government has been negotiating with the trade giant to lower the 17-percent tariff it slapped on Philippine exports.

Dacanay also pointed to the peso’s relative strength which “may have also given the BSP room to cut policy rates regardless of whether the US Federal Reserve cuts rates or not.”

Citing these, Dacanay said the upcoming Monetary Board (MB) “will likely be a tough call.”

Nevertheless, Dacanay said that inflation still faces upward risks that need close monitoring, which include Congress’ passage of a ₱200 across-the-board minimum wage hike. Policymakers are also considering raising rice tariffs based on seasonal supply.

If all these measures are implemented, Dacanay said these could significantly affect the inflation outlook and may prompt the BSP to reassess the pace of its rate-cutting cycle.