Downward inflation across the region would allow Asian central banks, including the Bangko Sentral ng Pilipinas (BSP), to cut interest rates further until year-end, according to the think tank Oxford Economics.

“Inflation in Asia is approaching or has already fallen below the lower bound of central banks’ target ranges in several economies,” noted Oxford Economics senior economist Callee Davis in a report emailed on June 26.

In the Philippines, headline inflation averaged 1.9 percent at end-May—below the targeted two- to four-percent band of year-on-year consumer price increases deemed manageable and conducive to economic growth.

But moving forward, “Asia, excluding China, will be squeezed by weaker United States (US) demand and increased Chinese supply competition,” Oxford Economics warned.

“With FX [foreign exchange] and inflation pressures easing, [Asian] central banks are expected to remain cautiously dovish,” the think tank said.

Following the BSP’s 25-basis point (bp) reduction in key interest rates last June 19, Oxford Economics said it expects another at least 25 bps in rate cuts before 2025 ends, alongside the central banks of India and Malaysia.

Oxford Economics lead economist Sunny Liu said earlier that the next 25-bp BSP interest rate cut could happen in the fourth quarter, which means a likely pause at the next monetary policy stance meeting scheduled on Aug. 28.

For the fourth quarter, the policy-setting Monetary Board (MB) will decide on interest rates on Oct. 9 and Dec. 11.

Despite lower inflation expectations across emerging markets (EMs), Oxford Economics flagged some upside risks emanating from recent global developments seen also impacting overall EM growth prospects.

For instance, “uncertainty about tariffs for EM exports lingers,” as the think tank noted that “only a few countries are likely to reach bilateral deals with the United States (US) before July 9, meaning that higher US tariffs may return for some EMs.”

Philippine exports to the US are facing a 17-percent reciprocal tariff when the three-month pause ends.

“The escalation of the Middle East conflict also poses a downside risk to our EM growth forecast,” Oxford Economics added.

“Since the start of this year, we’ve gradually revised down our EM inflation forecasts for 2025 and 2026. But a higher oil price poses an upside risk to our inflation baseline,” it said.

As such, “we still anticipate further monetary policy easing across major EMs, though the trend could be halted by emerging signs of rising inflation,” according to Oxford Economics.