Debt watcher Moody’s Ratings said that the Bangko Sentral ng Pilipinas’ (BSP) continued easing of key borrowing costs would cushion the local economy amid a challenging external environment, driven especially by the persisting crossfire between Israel and Iran.

“Continued monetary easing will play a vital role in supporting the domestic economy amid a complex external environment,” Moody’s said in a commentary published June 20.

Last Thursday, June 19, the BSP decided to trim the key interest rate by another 25 basis points (bps) to 5.25 percent from 5.5 percent previously. This brought the total reductions to 125 bps since the easing started in August last year.

“Progress on the inflation front opened the door for the central bank to deliver its second rate cut this year,” Moody’s noted.

Apart from the subdued inflation, BSP Governor Eli M. Remolona had earlier said that the latest policy easing took into account the global economic slowdown, mainly due to the uncertainties brought about by the escalating conflict in the Middle East, as well as the continued uncertainty over the tariff-led trade policy of the United States (US).

“This would lead to slower growth in the Philippines. A rise in oil prices, electricity rate adjustments, and higher rice tariffs would add to inflationary pressures,” he explained. He also said that while growth “remains robust, I think it’s not as strong as it could be.”

Gross domestic product (GDP) growth in the first quarter of 2025 accelerated by 5.4 percent, slightly faster than the 5.3 percent in the previous quarter, but slower than the 5.7 percent seen in the first quarter of 2024.

While the BSP revised its 2025 inflation forecast downwards to 1.6 percent from 2.4 percent previously, Remolona pointed to global risks to inflation, such as the rising global oil prices and the peso’s slump. He said these could push inflation above five percent, a level last seen nearly two years ago.

The last time inflation accelerated faster than five percent was in September 2023, when it posted a 6.1 percent rate. It then gradually declined throughout the year until May 2025, when it clocked in at 1.3 percent — its slowest in nearly six years since November 2019.

Remolona said the BSP worries about the combination of rising Dubai crude oil prices and the devaluation of the peso, which, to him, are the major factors for the risk of inflation spiking.

“There is a risk that the Strait of Hormuz will be closed. That would be a big risk,” the Remolona said.

Closing the Strait of Hormuz, one of the world’s major shipping routes, “would mean much higher oil prices, and that would mean higher inflation in the Philippines. So those are the big risks that we worry about,” the BSP governor stressed.

The BSP calls hitting five-percent inflation a bad scenario, noting that if this does not happen, the central bank could continue shaving off another quarter point.