Consensus among analysts has grown toward a higher certainty of a policy rate cut by the Bangko Sentral ng Pilipinas (BSP) when its Monetary Board meets next month.
This unanimous view became clearer after the government last week reported weaker-than-expected 5.4 percent growth in gross domestic product (GDP) in the first quarter of 2025.
The report on the first quarter GDP by the Philippine Statistics Authority (PSA) last Thursday supported previous analysts’ forecasts of further rate cuts this year, based only on a drop in inflation to 1.4 percent earlier reported for April.
The PSA last week released data showing the Philippine economy grew 5.4 percent in the first quarter of 2025, from 5.9 percent a year earlier. The GDP was below the government’s forecast of 6 percent to 8 percent for the full year 2025.
On the other hand, inflation came in at 1.4 percent in April from 1.8 percent in March.
‘Open to cutting rates’
“Given the ongoing disinflation trend, the Bangko Sentral ng Pilipinas has signalled that it is open to cutting rates by another 75 basis points (bps) this year,” Sanjay Mathur, ANZ chief economist for Southeast
Asia and India, said in a report.
“As of now, we expect two more rate cuts by the BSP in 2025 with a terminal rate of 5 percent,” Mathur said.
With the economic growth now expected to subside below the government’s 6 percent to 8 percent target range, the London,UK-based universal bank and financial services group, HSBC, also sees the BSP staying on an easing path.
“More specifically, we see the BSP cutting its policy rate to 5 percent by year-end to support growth, regardless of whether the Fed cuts its policy rate or not,” HSBC economist for Asean, Aris Dacanay said in a separate report.
The likelihood that the BSP will reduce its policy rate in June has also risen, Dacanay said.
When the Monetary Board last met on April 10, the Bangko Sentral decided to cut its Target Reverse Repurchase Rate by 25 bps to 5.5 percent, citing a more manageable inflation outlook.
Interest rates on overnight deposits were adjusted accordingly to 5 percent, and the lending facilities to 6 percent.
“This will make the upcoming easing cycle punchier when it comes to boosting growth,” Dacanay said.
HSBC expects the Philippine GDP to grow weaker in the half of the year “as trade uncertainties and challenges put a drag on the global economy.”
“We have recently cut our 2025 GDP forecast to 5.6 percent from 5.9 percent,” Dacanay said.
For Rizal Commercial Banking Corp. (RCBC) it is quite certain the GDP results in January to June will justify further policy rate cuts come June 19, 2025.
“GDP growth would have been faster had it not been for higher prices and interest rates over the past three years, or since the Russia-Ukraine war that started on February 24, 2022, which triggered higher inflation globally,” Michael Ricafort, RCBC’s chief economist, said.
“This prompted the Fed and other global central banks to increase interest rates in an effort to bring down inflation back to the target of central banks as part of fulfilling their price stability mandate,” Ricafort said.
China Banking Corp. (Chinabank) also said the GDP number, “along with easing inflation, boosts the case for an interest rate cut from the BSP.”
“GDP growth remained steady but underperformed ahead of higher tariffs,” Chinabank’s analysts said in a note.
“Some areas of the economy provided optimism for sustained growth, notably the pick-up in household consumption,” they said.
“The low and stable inflation environment should continue to support this key growth pillar,” the analysts’ note added.
Favorable base effects
ANZ’s Mathur was not fully impressed with the 5.3 percent year-on-year increase in the country’s private consumption in the first quarter of 2025.
“However, it remained well below the pre-pandemic five-year average growth rate of 6.2 percent,” Mathur said.
The increase in the first quarter “was mainly driven by favorable base effects as private consumption eased significantly in Q1 2024,” he said.
HSBC’s Dacanay noted a similar trend in domestic spending, saying it did not really make a big difference to the economic growth.
“Despite household spending finally improving and pre-election spending by the government being punchy, growth underperformed relative to expectations,” Dacanay said.
Relatively high interest rates — domestic and global — continue to put a drag on economic activities, RCBC’s Ricafort said.
Trade ‘a weak spot’
On the other hand, Chinabank analysts said external trade “may remain a weak spot” as it contends with higher US tariffs, persisting global uncertainties and a potential global economic slowdown.”
“Easing financial conditions would provide an additional boost to the economy, particularly on the investment side, amidst heightened global uncertainties,” Chinabank’s analysts added.
