Following the five-month low inflation rate in February, private-sector economists believe the Bangko Sentral ng Pilipinas (BSP) now has more room for further cuts in its key interest rates.

“This may pave the way for the BSP to resume cutting the policy rate in the second quarter,” MUFG Global Markets Research senior currency analyst Lloyd Chan said in a March 6 report.

HSBC ASEAN economist Aris Dacanay said the central bank could now shift its focus from maintaining foreign-exchange (FX) stability to economic support.

This shift would enable the BSP to be flexible in adjusting policies as needed.

Increases in consumer prices posted the slowest rate in five months, or since September last year. From 2.9 percent in January, inflation slowed to 2.1 percent last month, slightly above the lowest end of the government’s target of two percent to four percent.

Dacanay said in a March 5 commentary that the February inflation rate “supports not just a continuation of the BSP’s easing cycle next quarter but a policy rate cut regardless of the Fed [US Federal Reserve].”

“The economy can manage FX-driven price increases if the BSP cuts rates while the Fed holds stead,” he said, explaining that the within-target inflation rate could be a cushion against this risk.

In 2024, inflation averaged 3.2 percent, falling within the upper half of the government’s target band. The peso’s strength had also experienced wild swings, even hitting its weakest at 59.21 against the US dollar—but now stands at the 57-level.

In contrast, 2024 ended with a “disappointing” economic growth rate of 5.6 percent—significantly lower than the revised six- to 6.5-percent goal.

“The pressure to ease policy rates even further has been growing with household consumption slightly stumbling due to today’s high-interest rate environment,” Dacanay further said.

To recall, the central bank left the key policy rate unchanged at 5.75 percent after its three consecutive quarter-point cuts, totaling 75 basis points (bps) by the end of 2024.

Markets were surprised by the move, but the recent improvement in the local economy has sparked hopes that the BSP may soon continue its easing cycle.

Finance Secretary Ralph G. Recto said in a March 5 statement that relaxed inflation “creates room for potential monetary policy rate easing that would lower interest rates and provide cheaper borrowing costs for consumers and businesses.”

Emilio S. Neri Jr., vice president and lead economist at Bank of the Philippine Islands (BPI), emphasized the notable drop in rice prices to -4.9 percent in February from -2.3 percent in January, noting that consumer spending could recover this year due to this rice deflation.

“Slower inflation keeps the door open for BSP rate cuts this year, especially if the GDP [gross domestic product] data in May [for the first quarter of 2025] falls short of expectations,” Neri said.

While economists from the Chinabank Research team shared similar easing expectations, both Neri and Chinabank Research see the BSP moving with caution.

“We continue to believe that the space for easing this year remains limited,” Neri said, citing global uncertainties which put the peso at risk given the country’s “substantial” current account deficit.

“Maintaining interest rates at appropriate levels may offset the impact of these uncertainties,” Neri said.

Meanwhile, Dacanay said, “risks are tilted towards the BSP resuming its easing cycle even earlier during its next rate-setting meeting in April,” but added that his base case is a skip from April, thus an easing continuation in June.

For the BSP’s part, it said in a March 5 statement that “uncertainty over global economic policies and their potential impact on the domestic economy continue to warrant close monitoring.”

That said, the central bank said it would take into account the fresh development at its upcoming monetary policy meeting on April 3, 2025.

Singapore-based United Overseas Bank (UOB) forecasted in a March 5 report that a 25-bp rate cut in June is more likely, and the BSP would “hold it there through the second half” of this year.

“Heightened external uncertainty particularly surrounding global trade policies have now become top concerns for the BSP over domestic inflation and economic growth prospects,” UOB senior economist Julia Goh and economist Loke Siew Ting noted.

“The rising market volatility also prompted the central bank to call for caution in recalibrating its rate cuts this year, which will depend on incoming data and developments of external events in the near term,” they added.

“The consumer price inflation is expected to revert upward but within the central bank’s two- to four-percent medium-term target range in the second half of 2025 as favorable base effects abate, global trade tariffs take shape and extreme weather events could intensify,” the UOB economists said.