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Economists: Modestly faster 5.5% growth won't deter further BSP easing
Business
The Economy
Economists: Modestly faster 5.5% growth won't deter further BSP easing
Economists: Modestly faster 5.5% growth won't deter further BSP easing
By Derco Rosal
Published Aug 8, 2025 01:48 pm
At A Glance
- While the Philippine gross domestic product (GDP) showed relative strength in the second quarter, private-sector economists believe it is not strong enough to prevent the Bangko Sentral ng Pilipinas (BSP) from further reducing interest rates, as inflation is expected to remain soft and growth stagnant throughout 2025.
While Philippine gross domestic product (GDP) growth showed relative strength in the second quarter, private-sector economists believe it is not strong enough to prevent the Bangko Sentral ng Pilipinas (BSP) from further reducing interest rates, as inflation is expected to remain soft and growth stagnant throughout 2025.
“We do not think that the relative strength in [last Thursday’s] GDP growth data will deter the BSP from cutting rates further, as CPI [consumer price index] inflation remains on a strong downward trajectory,” Deepali Bhargava, regional head of research at ING Asia-Pacific, said in an Aug. 7 commentary.
Data from the Philippine Statistics Authority (PSA) showed that the Philippine economy expanded by 5.5 percent in this year’s April-to-June period, one-percentage-point (ppt) slower than the 6.5 percent recorded in the same period last year.
While this pace was significantly slower than last year’s, it remains higher than the first quarter’s 5.4-percent growth. This four-quarter-high economic growth also hit the lower end of the government’s lowered growth target of 5.5 to 6.5 percent.
Singapore-based United Overseas Bank (UOB) noted that while second-quarter growth clocked in “better than expected, it remained below the post-pandemic 2021 to 2024 average level of 6.2 percent and the [government’s] desired annual growth target of above six percent.”
“This along with a more downbeat inflation report for July strengthens the case for further monetary policy easing,” UOB senior economist Julia Goh and economist Loke Siew Ting asserted.
As such, UOB reiterated that the BSP will trim the current 5.25-percent key borrowing cost twice—25 basis points (bps) at the upcoming Aug. 28 policy meeting and another 25 bps in the last quarter “to safeguard growth momentum into 2026.”
UOB has also tweaked upward its full-year GDP growth projection from five percent to a still-below target 5.3 percent after considering the “stronger-than-expected” economic expansion in the second quarter.
Other than expectations of continued policy easing, UOB said supportive factors to its rosier outlook include the expected marginal impact from the 19-percent United States (US) tariffs imposed on Philippine exports.
Besides UOB, the other economists who are looking forward to two additional quarter-point rate reductions before year-end include Bhargava and Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco.
“The second-quarter GDP numbers were otherwise a letdown on the domestic demand side—the economy’s bread and butter—so we’re confident that the BSP will continue easing policy at its meeting in three weeks’ time,” Chanco said.
For UOB, benign inflation, higher daily wages, and steady overseas cash remittances are also expected to help sustain domestic demand in the second half of 2025 despite ongoing external uncertainties.
Rice prices dropped at their fastest pace since 1995, bringing consumer price increases to below one percent in July, partly supported by the current administration’s ₱20-per-kilo rice program.
July inflation across all income households dropped to 0.9 percent—the lowest since October 2019’s 0.6 percent—from 1.4 percent in June. This was substantially lower than last year’s 4.4-percent inflation rate.
Sunny Liu, lead economist at think tank Oxford Economics, also expects the BSP’s accommodative stance to be sustained, with a 25-bp reduction likely at the Monetary Board’s (MB) fourth policy-setting meeting later this month. Chinabank Research shared this outlook.
Liu bases this expectation on muted growth for the full year, which other economists also expect.
Thursday’s data, she said, “doesn’t alter our cautious outlook on the Philippines’ growth for 2025. We expect GDP to increase by 5.5 percent year-on-year this year, down from 5.7 percent a year earlier.”
Having a similar full-year growth forecast as Liu, Capital Economics senior Asia economist Gareth Leather said the growth pickup in the second quarter will run “steady” over the remainder of 2025 “as low inflation and monetary easing support domestic demand.”
Meanwhile, Chanco maintained his projection that the local economy will moderate growth to 5.3 percent this year, suggesting that overall economic activity will weaken again in the second half of the year.
Think tank GlobalSource Partners also noted that as early as two months ago, there were already signs that the pace of local growth would remain “flat.” It expects growth to settle at the lower end of the downscaled target of the Marcos Jr. administration’s economic team.