Manila Bulletin
Business
Banking & Finance
EIU expects two more BSP rate cuts before end-2025, defying market expectations of only one
Business
Banking & Finance
EIU expects two more BSP rate cuts before end-2025, defying market expectations of only one
EIU expects two more BSP rate cuts before end-2025, defying market expectations of only one
Published Sep 2, 2025 06:00 pm
|
Updated Sep 2, 2025 01:48 pm
Despite recent pronouncements by the Bangko Sentral ng Pilipinas (BSP) that one more policy rate cut before year-end would maintain the “Goldilocks” level, the Economist Intelligence Unit (EIU) still forecasts two more reductions at each of the two remaining Monetary Board (MB) interest rate decisions.
“We expect the BSP to continue the monetary easing cycle at its remaining meetings this year in October and December,” EIU Asia analyst Kalyani Honrao and Asia-Pacific regional director Alex Holmes said in a Sept. 1 report obtained by Manila Bulletin.
“We maintain that the central bank will continue to undertake a 25-basis-point (bp) cut in each meeting, which would take the policy rate to 4.5 percent by year-end,” EIU said.
This end-2025 terminal policy rate has consistently been EIU’s forecast even before BSP Governor Eli M. Remolona Jr. last week signaled possibly only one more 25-bp reduction before year-end.
As widely anticipated by the market, the BSP’s policy-setting MB last week reduced the key interest rate by 25 bps to five percent.
“The BSP’s continuing monetary easing is aimed to support economic growth in anticipation of weakening export performance for the rest of 2025 and subdued household consumption—a major driver of the Philippines’ growth—despite easing inflation and election-related cash handouts,” EIU noted.
The Cabinet-level Development Budget Coordinating Committee (DBCC) projects goods exports to decline by two percent this year, “largely due to slower global demand and heightened trade policy uncertainties”—reversing the government’s earlier six-percent growth projection prior to the world trade tensions reignited by United States (US) President Donald J. Trump at the start of the year when he returned to office for a second term.
This was despite robust merchandise exports growth from January to July, as Philippine exporters continued to front-load outbound shipments before higher US tariffs took effect in August.
End-July goods exports grew by 13.9 percent year-on-year to $48.6 billion, which, according to National Statistician Claire Dennis S. Mapa, was the highest-ever figure for the January to July period since 1991.
Also, “business sentiment remains weak amid elevated global economic uncertainty,” EIU said, pointing to the business confidence decline captured by the BSP’s quarterly business expectations survey (BES).
The latest BES showed that businesses were “cautiously optimistic” about the country’s economic performance during the April to June period, as overall business confidence slipped to 28.8 percent in the second quarter of 2025 from 31.2 percent in the first quarter.
“Although the Philippines secured a 19-percent tariff rate for exports to the US (which is lower than [the] 20 percent threatened by the US), businesses will remain cautious about investment plans amid uncertainty around US tariff policy. The Philippines’ export sector will be susceptible to any shocks if additional sectoral tariffs are rolled out,” EIU added.
In July, EIU lamented the “lop-sided” deal between President Ferdinand R. Marcos Jr. and Trump, which “barely reduced the US import tariffs for the Philippines,” while some US exports will enjoy zero tariffs.
On the plus side, EIU said low inflation so far this year would be “conducive to further monetary easing” by the BSP.
Headline inflation fell to an almost six-year low of 0.9 percent in July and averaged 1.7 percent during the first seven months, below the government’s two- to four-percent target range for manageable annual price increases deemed supportive of economic growth.
“Although the BSP foresees upside risks to the inflation outlook from potential electricity rate revisions and high rice tariffs, we believe that these factors are unlikely to translate into a significant increase in consumer inflation,” EIU said.
“The government’s decision to suspend rice imports until end-October will support local farmers ahead of the harvest season and help to stabilize the prices. We believe that this will be a temporary measure and rice imports will be resumed to avoid a spike in rice prices stemming from supply shortages,” EIU added. The two-month ban on rice imports ordered by Marcos began on Sept. 1.