BSP to cut policy rate anew — poll

By Katherine K. Chan

THE BANGKO SENTRAL ng Pilipinas (BSP) is widely expected to ease for a fifth straight meeting on Thursday as economic growth slows and inflation remains below target, analysts said.

A BusinessWorld poll conducted last week showed that 17 out of 18 analysts surveyed expect the Monetary Board to cut the target reverse repurchase rate by 25 basis points (bps) on Dec. 11. This is the board’s last policy review meeting of the year.

If realized, the benchmark rate will fall to 4.5% from the current 4.75%. At 4.5%, this would be the lowest policy rate in over three years or since the 4.25% in September 2022.

In the BusinessWorld poll, only one analyst, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco, sees the BSP delivering a 50-bp cut.

The central bank has so far reduced borrowing costs by a cumulative 175 bps since it began its easing cycle in August last year. It delivered a 25-bp cut at each of its meetings in April, June, August and October.

Moody’s Analytics Assistant Director and Economist Sarah Tan said the dismal third-quarter growth and easing inflation print may prompt a 25-bp rate cut on Thursday.

“Weaker-than-expected third-quarter GDP (gross domestic product) growth and a low-inflation environment together strengthen the case for further easing, even as risks of stronger price pressures linger,” she said in an e-mail. “These forces should outweigh concerns about the peso’s recent depreciation.”

In the July-to-September period, the Philippine GDP expanded by 4%, its slowest pace since the first quarter of 2021, as consumer and investor sentiment waned amid the ongoing public infrastructure corruption mess.

The country’s economic growth averaged 5% in the nine-month period, below the government’s 5.5-6.5% target for 2025.

Cid L. Terosa, a senior economist at the University of Asia and the Pacific, said the BSP will likely deliver a 25-bp cut in light of slowing economic growth both here and abroad, as well as a weaker pace of household spending.

“(The Philippine economy) does not seem to show signs of recovering from the effect of corruption scandals all throughout the country,” Mr. Terosa said.

For Mr. Chanco, the weaker-than-expected GDP growth in the third quarter, coupled with benign inflation, could support a jumbo cut by the central bank.

“A rate cut (on Dec. 11) is almost a given, the question is by how much, and we suspect that the very weak Q3 GDP print is reason enough for the Monetary Board to go with a larger 50-bp cut, especially with inflation still well under control,” Mr. Chanco said in an e-mail.

In November, headline inflation eased to 1.5% from 1.7% in October and 2.5% a year earlier amid slower price increases in food and non-alcoholic beverages, with food inflation posting a 0.3% decline during the month.

This brought the 11-month inflation average to 1.6%, below the BSP’s 1.7% full-year projection. November marked the ninth month in a row that inflation undershot the BSP’s 2-4% target.

Chinabank Research, which also anticipates a rate cut, said below-target inflation and well-anchored inflation expectations give the BSP room to continue easing.

“A more accommodative policy could also offer support for the Philippine economy, which grew weaker than expected in the third quarter and continues to face challenges from both the domestic and external fronts,” Chinabank Research said.

Deutsche Bank economist for the Philippines Junjie Huang said the central bank may ease further as they see slow growth through yearend.

“Q4 GDP growth may still be fairly weak amid lingering effects of constrained public spending… To reflect such a challenge, we revised down our GDP growth forecast to 4.1% year on year in Q4 from 5.4%, which in turn points to a wider negative output gap and thereby eliciting a policy action by BSP,” he said in a note.

Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., said lower borrowing costs may spur spending, capital expenditures and overall economic activity.

BSP Governor Eli M. Remolona, Jr. earlier said that the Philippine GDP might grow by only 4-5% by yearend, well-below the government’s 5.5-6.5% target.

Meanwhile, Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said that the anticipated rate cut by the US Federal Reserve at its last policy meeting this year also allows the BSP to have a more accommodative monetary policy stance.

“Global easing trends, particularly the Fed’s expected cut, also provide room for BSP to act without putting undue pressure on the peso,” he said in an e-mail.

The Fed has so far lowered its key policy rate by 150 bps since September 2024, bringing it to the 3.75-4% range. It is scheduled to have its last meeting this year on Dec. 9 and 10.

“A rate cut from both the Fed and the BSP (this) week would keep the interest rate differential at 75 bps, which could then help stave off any additional depreciation pressure on the peso,” Chinabank Research said.

The peso hit the P59-per-dollar level several times in November, even reaching a fresh low of P59.17 versus the greenback on Nov. 12.

FURTHER EASING IN 2026
Meanwhile, analysts see further monetary policy easing next year amid a dim growth outlook.

“(I’m) expecting one more 25-basis-point rate cut next year that can take place in the first quarter as GDP is likely to show sluggishness in the fourth quarter of this year with inflation to end this year at sub-two percent,” Security Bank Chief Economist Angelo B. Taningco said in an e-mail.

The BSP chief has said that the economy would only fully recover by 2027 but noted that a slight rebound might come by the middle of next year.

Maybank Investment Bank economist Azril Rosli projects two more 25-bp cuts next year, with the first one likely to come in the first half, as he expects inflation to settle at 2.2% in 2026.

“Price pressures continue to ease, with rice prices softening due to stronger domestic harvests and lower global prices, though the BSP will continue monitoring the impact of rice import restrictions on supply and retail markets,” he said in an e-mail. “Upside risk is the combined effects of rice policy adjustments, base effects, and higher electricity rates.”

The suspension of regular and well-milled rice imports will be temporarily lifted in January but will be reimposed from February to April.

The flexible tariff scheme on rice will likewise take effect on Jan. 1, wherein the levy on the staple grain will be adjusted by 5 percentage points every 5% change in global prices up to a maximum of 35%. The National Government currently imposes a 15% tariff on rice.

Meanwhile, Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. also expects the central bank’s easing cycle to end once the benchmark interest rate settles at 4% but flagged risks of excessive easing.

“A gradual easing path could bring the policy rate down to 4% in 2026, providing support to an economy that will likely depend more on monetary policy in the near term given the constraints on fiscal spending,” he said in a note.

“Nevertheless, excessive rate cuts may carry risks as inflation could rise again in 2026. An overly aggressive easing cycle could force the BSP into an abrupt reversal should inflation pick up unexpectedly, potentially leading to sharper-than-ideal rate hikes later on,” he added.

The BSP projects inflation to return to the target range by 2026 at 3.1%, before slowing anew to 2.8% in 2027.