THE BANGKO SENTRAL ng Pilipinas (BSP) could resume its monetary easing cycle this month and cut benchmark rates by at least two times this year but at a modest pace due to global and domestic uncertainties that could stoke inflation, GlobalSource Partners said.
“We believe benign inflation readings and forecasts should allow the BSP to sustain its easing cycle at least twice this year and in baby steps. Modest easing is critical when uncertainties abound, particularly regarding the prospects for growth and financial stability,” GlobalSource Partners said in a March 31 report written by country analyst Diwa C. Guinigundo and economic analyst trainee Audrey Herrera-Lim.
“With a potentially weak external payments position and the adverse exchange rate pass through, monetary policy could in fact remain generally cautious until the markers of global and domestic uncertainties relent,” it said.
BSP Governor Eli M. Remolona, Jr. last week said there is a “good chance” that the Monetary Board will cut rates by 25 basis points (bps) at their April 10 meeting, Bloomberg reported.
Mr. Remolona said the BSP remains on an easing cycle and could reduce borrowing costs by as much as 75 bps this year depending on data.
The central bank has brought down benchmark interest rates by a total of 75 bps since it began its rate-cut cycle in August last year, with its policy rate currently at 5.75%.
The Monetary Board in February unexpectedly kept rates unchanged amid uncertainties stemming from the Trump administration’s policies.
“With this information, we are convinced the BSP will resume what has now become its “calibrated rate-cutting cycle” during the next monetary policy meeting on April 10,” GlobalSource Partners said.
It expects Philippine inflation to average 1.7% to 2.1% this year, based on its own models.
“Such prognosis allows the monetary authorities ample leeway to further ease monetary policy. However, some word of caution is imperative. The previous BSP risk-adjusted forecasts are inching closer to the 4% upper end of the 2-4% inflation target. With both February and March inflation trending lower, risk-adjusted inflation forecasts that would be announced after the Board meeting on April 10, all other things being equal, could be lower than their current levels of 3.5% and 3.7% for 2025 and 2026, respectively,” it said.
The latest round of cuts in banks’ reserve requirement ratios that took effect last week, which released over P300 billion in additional liquidity, could also be inflationary, it added.
“Already, the BSP has suggested that the output gap could already be in a slight positive territory such that a rate cut if not appropriate and timely could add more price pressure.”
GlobalSource Partners added that while slowing domestic growth due to weakening business activities and global uncertainties amid the United States’ tariff policies could support sustained monetary easing, financial stability issues may lead the Philippine central bank to err on the side of caution.
The BSP in its latest Financial Stability report warned of risks stemming from global trade pressures, geopolitical tensions and domestic debt concerns.
“The content of the latest stability report has actually different implications for monetary policy. On the one hand, it calls attention to global uncertainty, which would require constant monitoring of market risks as well as cautious monetary policy,” GlobalSource Partners said.
“On the other hand, the issue of excessive household borrowing, especially unsecured consumer loans, might force the authorities to sustain easing to avoid squeezing borrowers and prevent banking stress. While the capital markets are presented as an alternative funding source, Philippine capital markets are rather shallow and may not allow this soon. At this point, capital markets could hardly serve as “spare tire” should banks decide to pull back.”
The Philippines’ weak external payments position could also put pressure on the peso, which may stoke inflation, it added.
The BSP expects the country’s balance of payments (BoP) position to swing to a deficit this year, as well as post a wider current account deficit, amid global trade volatilities.
The central bank’s latest projection shows the overall BoP will register a deficit of $4 billion this year, equivalent to -0.8% of gross domestic product (GDP).
In 2024, the BoP position stood at a surplus of $609 million, plunging by 83.4% from the $3.672-billion surplus at end-2023.
Meanwhile, the current account deficit — which covers transactions involving goods, services, and income — is expected to reach $19.8 billion this year, equivalent to -3.9% of economic output.
Latest data from the BSP showed the current account deficit widened by 41.4% to $17.5 billion last year from $12.39 billion in 2023. This marked the second-largest current account deficit on record after the $18.3-billion gap recorded in 2022.
“This would imply that a weak peso could proceed from an external deficit… Thus, it also means that the inflows from foreign investments and foreign debt would not suffice to reverse the huge current account deficit of nearly $20 billion in 2025 and over $21 billion in 2026. Unless the BSP keeps its policy rate steady, or shifts to a more cautious stance, inflation is bound to gather some pace due to exchange rate pass through,” GlobalSource Partners said. — A.M.C. Sy
