BSP to resume easing — poll

By Luisa Maria Jacinta C. Jocson, Senior Reporter

THE BANGKO SENTRAL ng Pilipinas (BSP) is expected to cut rates this week as low inflation and the US’ tariff policy will give it more than enough room to resume its rate-cutting cycle, analysts said.

A BusinessWorld poll conducted last week showed that all 17 analysts surveyed expect the Monetary Board to reduce the target reverse repurchase rate by 25 basis points (bps) at its policy meeting on April 10.

If realized, this would bring the benchmark rate to 5.5% from the current 5.75%.

The central bank kept interest rates steady in February as it waited to see how global trade uncertainties would unfold. It slashed borrowing costs by a total of 75 bps in 2024.

“The door to continue the easing cycle has now swung even wider, with domestic conditions becoming even more appropriate for a rate cut,” HSBC economist for ASEAN Aris D. Dacanay said.

Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said there is a “90% chance” the Monetary Board will cut rates by 25 bps on Thursday.

“We think a gradual cut will be conducted given below-than-expected March inflation and need to underpin economic growth amid higher global tariffs,” Security Bank Corp. Vice-President and Research Division Head Angelo B. Taningco said.

Philippine National Bank economist Alvin Joseph A. Arogo said further easing will be justified by “low inflation, higher probabilities of Fed rate cut, and relatively better reciprocal tariff compared to other Asian countries.”

“We think that there is room for the ‘baby-step’ rate cut amid global trade uncertainties. One major reason is the continued deflation narrative, with inflation steady within the government’s inflation target of 2-4%,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said.

SLOWING INFLATION
The March inflation print is one of the key indicators that will prompt the central bank to cut rates this week, analysts said.

March inflation slowed to 1.8% in March from 2.1% in February, its slowest rate in nearly five years.

Inflation averaged 2.2% in the first quarter, well within the central bank’s 2-4% target.

“I’m expecting the (Monetary) Board to resume easing (this week), with a 25-bp rate cut to the target reverse repo rate,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said.

He said the recent inflation prints “indicate strongly that the BSP still has ample room to further cut rates nominally while still keeping to its endgame of pursuing a ‘less-restrictive’ policy.”

Nicholas Antonio T. Mapa, chief economist at Metropolitan Bank & Trust Co., said the data so far “points to the need and scope for easing.”

“Inflation is at the lower end of target, risk-adjusted inflation forecasts point to target consistent inflation this year and next while growth is projected to miss target for a third year in a row,” he added.

Citi Economist for the Philippines Nalin Chutchotitham said the below-2% inflation “cements the case for an April policy rate cut.”

“While creeping higher from April, we see inflation staying firmly in the lower half of BSP’s target range for the rest of 2025, and cut our 2025 inflation forecast to 2.2%,” she said.

The BSP’s baseline forecasts for inflation are at 3.5% for 2025 to 2026. Accounting for risks, inflation could reach 3.7% in 2026.

“With inflation much lower than the BSP’s risk-adjusted inflation forecast, we expect the central bank to tweak its inflation forecast downwards next week,” Mr. Dacanay said.

“And with inflation down, the real policy rate has widened enough for the BSP to cut even without the Fed doing the same. All is well,” he added.

TRUMP TARIFFS
Meanwhile, analysts said the central bank will be able to now price in the tariff impact and lower interest rates accordingly.

“An interest rate cut would provide additional support for the Philippine economy amid risks from higher US tariffs,” Chinabank Research said.

“Lower borrowing costs, which is a boon for investments, could help temper the impact of potentially weaker external demand and maintain the economy’s upward growth trajectory.”

ING Regional Head of Research for Asia-Pacific Deepali Bhargava said the “global growth uncertainty” stemming from the US tariffs has strengthened the expectation of a rate cut.

Last week, the Philippines was not spared by US President Donald J. Trump announced a barrage of tariffs on all its trading partners. He imposed a 17% reciprocal tariff on all Philippine goods exported to the US, which will take effect on April 9.

While this was higher than the 10% baseline tariff imposed on most countries, the US tariff on the Philippines was the second lowest in Southeast Asia after Singapore (10%).

However, Chinabank Research noted that the Philippines is more insulated from tariffs than its regional peers due to its strong domestic demand and the relatively lower tariff.

“Moreover, a less restrictive monetary policy could help temper the adverse effects of an escalating global trade war on the Philippine economy,” it added.

The stabilizing currency will also allow the BSP to cut rates further, analysts said.

“The peso appreciated further versus the US dollar as of March, at P57 levels, the strongest for the peso in more than five months, could further improve import prices and overall inflation, thereby could also support further monetary easing going forward,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

The peso closed at P57.21 against the greenback at end-March, strengthening by 78.5 centavos from the P57.995 at end-February.

“An inflation print that remains within their target range and a broadly stable peso will give BSP the confidence to proceed with a rate cut, even as the US Fed held interest rates steady in March,” Moody’s Analytics economist Sarah Tan said.

The US central bank last month held its benchmark overnight rate steady in the 4.25%-4.5% range amid expectations of rising prices ahead of Mr. Trump’s tariff proposal.

“We maintain our view that the 100-bp resulting interest rate differential with the Fed remains a comfortable level that is unlikely to trigger significant capital outflows and a sharp depreciation of the peso that could fan inflationary pressures,” Chinabank Research added.

FURTHER CUTS?
Analysts said the central bank is most likely to continue on its easing path for the rest of the year.

“Nevertheless, the latest print should give the Monetary Board enough comfort to restart its easing cycle next week; we expect a 25-bp cut this month, followed by 75 bp worth of additional easing by yearend,” Mr. Chanco said.

After April, Ms. Chuchotitham said she expects the BSP to deliver rate cuts in August and December in increments of 25 bps.

“Restarting the easing cycle will provide much needed support to domestic demand, more so with the reserve requirement ratio cut to 5% last week, making the BSP’s monetary transmission more efficient,” Mr. Dacanay said.

“Credit demand in the economy remains tepid, while consumption is still muted since high interest rates have brought demand for big-ticket purchases down.”

Latest data from the BSP showed bank lending growth slowed to 12.2% in February from 12.8% in January.

“Lowering the policy rate will also support the domestic economy at a time when uncertainties cloud the outlook for its external-facing sectors,” Ms. Tan said.

Oikonomia Advisory & Research, Inc. economist Reinielle Matt M. Erece said the BSP should focus on supporting growth next.

“Since inflation is already hovering within the central bank’s inflation targets, it’s time to target another area, economic growth,” he said.

“The disappointing growth last quarter shows the need for policy measures such as monetary policy easing to boost consumer demand and business activity.”

On the other hand, Chinabank Research noted that the central bank will likely remain cautious as it assesses the impact of global policies on the domestic economy.