Despite recent interest rate cuts by the Bangko Sentral ng Pilipinas (BSP), inflation hitting nearly six-year lows in recent months, and still-muted second-quarter growth in some sectors, further reductions in key borrowing costs are seen as necessary.

“We think the second-quarter GDP [gross domestic product] results will increase his conviction that more monetary easing is needed, fast,” HSBC Association of Southeast Asian Nations (ASEAN) economist Aris Dacanay said in a commentary published last week.

Dacanay was referring to BSP Governor Eli M. Remolona Jr.’s earlier signals, following a below one percent inflation rate, that a policy easing “has become more likely.” But Dacanay believes the central bank will most likely hold its policy stance during the upcoming fourth policy meeting on Aug. 28.

Still, Dacanay said he also acknowledges the increasing possibility of a key interest rate cut as early as August. For the full year of 2025, he sees growth clocking in at 5.4 percent, falling short of the government’s downscaled target of 5.5 percent to 6.5 percent. If realized, it would also be substantially slower than 2024’s 5.7 percent growth.

“We think the finer details suggest that more monetary easing will likely be needed to shore up growth ahead,” Dacanay said.

He noted that services exports, mainly from tourism and the business process outsourcing (BPO) sector, dropped 4.2 percent annually, partly due to the strong peso. This drop was more defined, especially against India, the Philippines’ main rival in the business process outsouring (BPO) industry.

A strong peso raises the cost of the country’s exports in foreign markets, making its goods and services less competitive, Dacanay explained.

“Construction also slowed, but this was likely because of the government spending ban that occurred during the mid-term elections,” he added, noting that "quickening and deepening the ongoing easing cycle will help support both sectors.” 

For Radhika Rao, senior economist at Singapore-based DBS Bank, even after the BSP has so far cut one-third of its total interest rate hikes post-pandemic, it still has room for further reductions in the coming months.

“Within-target inflation provides the room to lower rates further, after the BSP unwound a third of the hikes undertaken in 2022-23,” Rao said in an Aug. 8 commentary. The BSP has so far reduced 125 basis points (bps) since it kicked off its easing cycle in August last year to tame the raging inflation.

Its latest cut was in June when it was brought down to 5.25 percent from 5.5 percent previously.

Despite the recent easing, Rao argued that the real interest rate remains about 350 bps to 400 bps above inflation. This gives the BSP room, or a “cushion,” to support its more dovish policy stance.

“We expect the BSP to cut by further 50 bp this year, with the next in August,” Rao said. This, as she lowers her growth and inflation forecasts for the entire year. While the GDP growth projection was not explicitly indicated, consumer price movements are seen to fall below both the government’s forecast of two to three percent and its target of two to four percent.

“Moderation in food price has helped to soften inflation, with the contribution of services also off the boil,” Rao said. Philippine Statistics Authority (PSA) Undersecretary and National Statistician Claire Dennis Mapa said earlier that the government’s ₱20-per-kilo rice program helped lower prices of the food staple last month, a trend that Filipinos began seeing since June.

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.

“As long as inflation remains manageable, private consumption will likely continue its gradual and marginal improvement,” Dacanay said. Household spending grew year-on-year by 5.5 percent in the second quarter, higher than 4.8 percent in the same quarter last year.

“Keeping private demand strong could be key to building resilience amid the expected slowdown in global trade ahead,” he noted.