The Bangko Sentral ng Pilipinas (BSP) Monetary Board is expected to further reduce the target reverse repurchase (RRP) rate, or policy rate, by 25 basis points (bps) next month amid market expectations that inflation will settle within the government's target range, according to Citi Philippines.
"We expect the BSP to continue to cut policy rates by 25 bps at the February (Feb. 20) meeting to 5.50 percent," said Citi economist Nalin Chutchotitham. "With 2025 inflation expected to be well within target, absent large shocks, the expected real policy rate still appears fairly tight by historical standards."
The US-based Citi also expects the BSP to cut the RRP rate in June and August this year. However, it will likely pause for the April 3 policy meeting ahead of the May mid-term elections.
"We also adjusted our expectation for rate cuts to February, June 19, and August 28, spacing them out for Q1, Q2, and Q3," said Chutchotitham. "This allows the BSP time to check the pulse of domestic demand, given the upcoming general elections in May, as well as external factors, including the Fed's rate cuts."
The BSP will only have six policy meetings starting in 2025, instead of eight in past years.
Chutchotitham said that for 2026, they expect another 50 bps rate cut "if inflation stays close to the target midpoint, thus bringing the real policy rate closer to historical levels and continuing to support economic growth."
Citi forecasts the economy, as measured by gross domestic product (GDP), will grow by six percent this year. This forecast considers concerns for demand-pulled inflation, which remains manageable in their view. The six percent GDP estimate is at the low end of the government's six percent to eight percent target for 2025.
The latest Citi commentary incorporates the December inflation report, which was higher at 2.9 percent, compared to November's 2.5 percent.
Chutchotitham noted that while there are still some upside risks to the inflation outlook from potential increases in electricity charges in the first quarter, they still think inflation will stay at around 3.1 percent for 2025, well within the BSP target range.
Meanwhile, she said the current policy rate of 5.75 percent is still on the high side, and she expects the BSP will reduce the key rate by a cumulative 75 bps this year, similar to 2024.
The BSP has said that it will maintain a measured approach in monetary policy easing in 2025 amid well-anchored inflation expectations.
For this year, the BSP's risk-adjusted inflation forecast is 3.4 percent, and 3.7 percent for 2026.
BSP Governor Eli M. Remolona Jr. has hinted that even with the cumulative 75 bps rate reduction last year, it was not enough and will not have an immediate impact on the country's growth trajectory.
The BSP has noted that the balance of risks to the inflation outlook remains on the upside because of impending transport fare and electricity rate hikes. On the downside, the impact of lower import tariffs on rice is a major factor.