If the Bangko Sentral ng Pilipinas (BSP) prolongs its monetary policy easing pause, it may be forced to implement steeper interest rate reductions later, as persisting economic weakness threatens growth, according to Deutsche Bank.
"Delaying further rate cuts could risk the BSP having to do more in a 'hard landing'—more than the 50 bps [basis points] in total that it expects for this year—as economic activity may continue to weaken," the Germany-based bank's research arm said in a Feb. 22 report.
This remark came after the central bank decided to keep the key policy rate unchanged at 5.75 percent—a move that surprised the markets. Majority of economists expected a 25-bp cut given the weaker-than-expected growth in 2024 and tamed inflation.
Following the Monetary Board decision, BSP Governor Eli M. Remolona Jr. clarified that the central bank was "still in an easing cycle, but the pause was prudent as it further assessed the impact of global policy uncertainty on the domestic economy."
Deutsche Bank Research, which previously forecasted a quarter-point cut in the most recent policy meeting, now expects two consecutive 25-bp reductions in the April and June meetings, citing uncertainties lurking in the corner.
"We still expect the BSP to cut by 50 bps in total this year," it said.
With the BSP citing lingering uncertainties for its pause, the bank believes "global policy uncertainty is unlikely to clear in the coming months."
Deutsche Bank argued for the possibility of larger cuts later this year as the country's gross domestic product (GDP) growth could continue to move even more sluggishly. Last year’s economic growth stood at a below-target 5.6 percent, following the 5.2-percent expansion seen in the last quarter.
It forecasted GDP to grow by only 5.8 percent this year, once again below the government's more ambitious six- to eight-percent goal.
Aside from the economic slowdown, Deutsche Bank Research also expects local inflation to accelerate at a faster pace. From three percent previously, the bank slightly raised its forecast to 3.2 percent, citing upside risks from "higher electricity and transport charges this year."