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Southeast Asian central banks to cut interest rates some more as US tariffs to hurt exports, growth—Capital Economics
Business
Banking & Finance
Southeast Asian central banks to cut interest rates some more as US tariffs to hurt exports, growth—Capital Economics
Southeast Asian central banks to cut interest rates some more as US tariffs to hurt exports, growth—Capital Economics
Published Jul 24, 2025 11:15 am
Central banks in Southeast Asia, where economies like the Philippines export a wide array of goods to the United States (US), are expected to cut interest rates some more as tariffs take effect next month, according to the think tank Capital Economics.
In a July 23 report, Capital Economics senior global economist Ariane Curtis said Southeast Asian countries and Mexico belonged to economies where “downside risks to activity dominate and where monetary policy is likely to be set looser than would have been the case in the pre-tariff world.”
“These economies are relatively dependent on US demand for their exports, meaning that tariffs will reduce GDP [gross domestic product] growth,” Curtis said.
President Ferdinand Marcos Jr. and US President Donald Trump this week agreed to impose a 19-percent tariff on Philippine exports to America, while certain American products would reportedly enjoy zero duty upon entry into the Philippines.
The US is the Philippines’ No. 1 export market. The latest preliminary Philippine Statistics Authority (PSA) showed that goods exported to America rose 3.6 year-on-year to $1.11 billion in May, bringing five-month shipments to $5.38 billion, up 9.1 percent compared to US sales a year ago.
The US remained as the Philippines’ top export destination in the month of May as well as during the first five months, even as the over 15-percent share of total for both periods fell below the 16-17 percent a year ago.
Last month, the Cabinet-level Development Budget Coordinating Committee (DBCC) announced the government’s expectations of a two-percent decrease in goods exports this year, “largely due to slower global demand and heightened trade policy uncertainties.”
Prior to the global trade tensions started by Trump, the government had projected six-percent growth in 2025 merchandise exports.
The Marcos Jr. administration’s economic managers also slashed their GDP growth target for the year to 5.5 to 6.5 percent due to these external trade developments.
According to Curtis, “the combination of a weaker activity backdrop and an increase in low-cost exports from China due to trade diversion will weigh on goods price pressures.”
Capital Economics reported earlier that China is increasing exports to emerging markets (EMs) like the Philippines to reroute shipments to the US.
As such, Curtis said the think tank “expects central banks in Mexico and parts of Asia to continue cutting interest rates in the coming months, and by more than the consensus assumes.”
Capital Economics had projected the Bangko Sentral ng Pilipinas’ (BSP) Monetary Board (MB) to cut the policy rate by 25 basis points (bps) during its next policy-setting meeting on Aug. 28.
Another 25-bp reduction is expected by the think tank before year-end, to further lower the key interest rate to 4.75 percent from the current 5.25 percent.
In general, “while higher tariffs will cause some Asian economies to pursue slightly looser monetary policy than otherwise, domestic factors will be the key driving force behind rate decisions in most economies in the coming months,” Capital Economics said.
“And we think that the risk of tariffs causing a rise in inflation in the US will keep the Fed [US Federal Reserve] on the sidelines this year,” it added.
For Capital Economics, “given higher US tariffs and the threat of more to come, central banks globally must contend with setting monetary policy during a period of heightened trade policy uncertainty.”