Most analysts interviewed by Malaya Business Insight said they were “pleasantly surprised” at the actual outturn for February’s consumer price index being lower than they had forecast. They said they now see the policymaking Monetary Board more likely to cut key interest rates in the next BSP policy meeting scheduled for April 3.
Michael Ricafort, RCBC chief economist, who earlier estimated inflation for February at 2.5 percent, said in a Viber message yesterday the more-benign-than-expected inflation that proved to be nearer the lower end of the BSP inflation target for the year of between 2 percent and 4 percent would support monetary easing.
“Particularly possible, a -0.25 BSP rate cut as early as April 3. The pleasant surprise on the more benign local inflation data (will) further improve market sentiment—three straight days of gains for the peso and the PSEi, ignoring all the external noises, especially those related to Trump’s tariff threats,” Ricafort said.
He said the peso exchange rate now is strongest against the US dollar at 57.55, the best in more than 4.5 months or since October 18, 2025. Meanwhile, the PSEi gained for the third straight day by 0.7 percent to 6,105.05, near one-week highs.
Jonathan Ravelas, BDO lead strategist, said February’s slower inflation “could pave the way for the BSP cutting rates.”
Ravelas earlier forecast February inflation at a steady rate of 2.9 percent due to “still rising food and gas prices.”
Aris Dacanay, HSBC economist for Asean, said in an email message the large disinflationary impulse of rice prices in February was largely expected.
“What we did not expect was a sharp correction in vegetable prices, perhaps, due to improving supply conditions after the typhoons that hit the archipelago last year. Overall, this downside surprise is in line with our view that risks to inflation are tilted to the downside. Retail rice prices still have room to stabilize even further, while China potentially shifting its exports from the US to, say, Asean, in response to the US tariffs, may lead to import competition in the region and, thus, a disinflationary impulse in core goods,” Dacanay said.
“The February CPI supports, not just a continuation of the BSP’s easing cycle next quarter, but a policy rate cut regardless of the Fed,” Dacanay said.
With inflation finding itself within the lower-end range of the BSP’s target band, there is room for the economy to absorb any FX(forex)-induced inflation if the policy rate differential between the BSP and the Fed were to narrow.
“Our base case is for the BSP to resume its easing cycle in June this year. Due to inflation surprising to the downside, risks are tilted towards the BSP resuming its easing cycle even earlier during its next rate-setting meeting in April,” Dacanay added.
Jonathan Koh, Standard Chartered Bank Asia economist and FX analyst, said they expect inflation to remain contained within the BSP’s inflation target range.
“Our full-year average forecast remains at 3.1 percent for 2025. We see lower rice prices, lower rental inflation and contained core inflation helping offset upside risks from higher electricity prices,” Koh said in a report.
“As we have noted and as the Governor has alluded to, for the BSP, it remains in an easing cycle. It is only a question of when the BSP will cut rates. We currently expect the BSP to deliver its first rate cut of 25 bps for 2025 in June, and then another 25 bps each in August and Q4 for a total of 75bps,” Koh said.
Emilio Neri, Jr., BPI lead economist, expects consumers to benefit from the slower rate of inflation “as it frees up funds for both essential and discretionary spending.”
“The decline in rice prices is particularly important, as historical data show that rice has the greatest influence on consumer behavior. Spending on other items usually deteriorates when rice prices are high. With rice prices now falling, consumer spending may see a notable recovery this year,” Neri said.
Slower inflation, he added, keeps the door open for BSP rate cuts this year, “especially if the GDP (gross domestic product) data in May falls short of expectations.”
“However, we continue to believe that the space for easing this year remains limited. Uncertainties abroad remain a key concern, making the peso vulnerable given the country’s substantial current account deficit. Maintaining interest rates at appropriate levels may offset the impact of these uncertainties,” Neri said, adding that further reduction in the reserve requirement ratio appears more feasible.
For Nicholas Mapa, Metrobank chief economist, the likelihood of a BSP rate cut in next month’s meeting has increased.
“The much lower than expected print keeps the door wide open for BSP to follow through on the much anticipated rate cut at the April meeting after unexpected pausing at their last meeting. Core inflation is now down to 2.4 percent, with a broad-based slowdown reported, with only one subsector recording faster inflation for February.”
Given the low inflation environment, we see a possible policy rate cut at the next Monetary Board meeting in April,” Mapa said.
He said they have revised Metrobank’s full-year inflation forecast this year to 3.1 percent from 3.4 percent previously, “barring major supply-side shocks.”
