BSP rate cut likely as inflation slows

Economists expect 25-bps cut on Thursday

MANILA, Philippines —  The Bangko Sentral ng Pilipinas (BSP) is widely expected to resume its monetary policy easing this week, as a continued slowdown in inflation opens the door for a fresh interest rate cut. Analysts said the BSP’s Monetary Board would likely slash borrowing costs by 25 basis points (bps) on Thursday, bringing the key policy rate to 5.5 percent from the current 5.75 percent.

“Progress on the inflation front will boost the central bank’s confidence to resume cutting rates,” said Sarah Tan, economist at Moody’s Analytics. “The latest March print, which was the softest since May 2020, will be a prompt nudge.”

Headline inflation cooled to 1.8 percent in March from 2.1 percent in February, falling at the lower end of the BSP’s forecast range of 1.7 to 2.5 percent for the month. This offers enough room for the central bank to act, especially as inflation expectations ease and growth risks rise.

“Further monetary policy easing in the country will help reduce pressure on households’ budgets, bringing some relief to the domestic economy amid a poorer trade climate as US tariffs mount,” Tan said.

Aris Dacanay, ASEAN economist at HSBC, said inflation risks are still tilted to the downside as there is room for local retail rice prices to ease further in the coming months.

“With inflation trending lower, we think an April rate cut is locked in,” he said. “The door to continue the easing cycle has now swung even wider, with domestic conditions becoming even more appropriate for a rate cut.”

The Monetary Board held interest rates steady in February, keeping the benchmark policy rate at 5.75 percent after delivering a total of 75 basis points in rate cuts earlier in 2024.

According to Dacanay, the uncertainties that clouded the BSP’s outlook in February have since eased, giving the central bank more confidence to move.

“Domestic conditions were already appropriate for a rate cut,” he said. “Liberation Day is already past us, and as expected, reciprocal tariffs imposed on the Philippines were relatively benign.”

The recent cut in banks’ reserve requirement ratio to five percent is also seen to enhance monetary transmission. HSBC estimates that commercial lending rates have already absorbed 67 percent of the past 75 bps in rate cuts, making the BSP’s easing more effective in stimulating demand.

“We expect the BSP to bring its policy rate down to five percent in 2025, with the next 25-bp rate cut in August,” Dacanay said, noting that the central bank is likely to move in “baby steps” this year.

Citi economist for the Philippines Nalin Chutchotitham said that the central bank is likely to resume its rate-cutting cycle on April 10, followed by further reductions in August and December.

“With today’s print close to the floor of BSP’s March forecast and below target, and our revised forecasts implying tighter monetary policy stance in real terms, we expect cuts to resume,” she said.

Chutchotitham lowered her inflation forecast for 2025 to 2.2 percent, citing base effects and softer rice and energy prices. She said inflation is expected to stay firmly in the lower half of the BSP’s two to four percent target throughout the year.

Meanwhile, BPI lead economist Jun Neri said the decline in rice prices could help ease financial pressures on households and lift domestic consumption, supporting economic growth at a time when global trade faces renewed headwinds.

“Consumers will likely continue to benefit from slower inflation as it frees up funds for both essential and discretionary spending,” Neri said. “The recent slowdown in inflation paves the way for a potential rate cut by the BSP.”