The Philippine economy is set to gain from further policy easing by the Bangko Sentral ng Pilipinas (BSP), now seen more certain by analysts and businesses during the remainder of the year following the US Federal Reserve’s latest interest rate cut.
The Fed at Wednesday’s meeting lowered its policy rate by 25 basis points to a range of 4 percent – 4.25 percent, its first cut since December, and signaled a gradual easing cycle in response to mounting labor market concerns.(See Reuters report on the right)
The consensus among analysts is that the BSP will seize the opportunity to ease its key interest rates further.
“The latest US Fed rate cut should provide more legroom for the BSP to cut rates further, while also easing pressure on the peso,” Ron Lantin, fund manager at Insular Life Assurance Co. Ltd., said.
“A stable currency and a low-interest rate environment should be supportive of economic growth for the Philippines,” he added.
Matching Fed’s move
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the Fed has signaled two more 25-basis-point cuts before the end of 2025, followed by another in 2026 and one in 2027.
“That would be an additional 1 percentage point of easing up to 2027. The BSP could match those cuts to better manage interest rate differentials, now at 0.75 from the record low of 0.50, provided economic data weaken and inflation remains within the 2-4 percent target,” he said.
Ricafort added that aligning with the Fed would be “good for the economy in terms of lower borrowing costs, stronger credit demand, and more investments and economic activity.”
On August 28, the Monetary Board cut the BSP’s key policy rate by 25 basis points to 5 percent, while adjusting the overnight deposit rate to 4.5 percent and the lending facility to 5.5 percent.
Inflation watch
Monetary authorities have repeatedly emphasized a data-driven approach, but signals from Governor Eli Remolona and other policymakers have pointed to a willingness to ease further if inflation stays subdued.
Nicky Franco, head of research at Abacus Securities, said the Fed’s action widened the BSP’s policy room, ensuring another 25-basis-point cut by the central bank.
“The case for one has gained more urgency, in our view, after disappointing car sales in July and August, as well as the risks posed by the realignment of the DPWH budget,” Franco added, referring to the Department of Public Works and Highways.
Philippine headline inflation quickened to 1.5 percent in August from 0.9 percent in July, the Philippine Statistics Authority (PSA) reported early this month.
This brought the year-to-date average to 1.7 percent from January to August 2025 – well below last year’s 3.7 percent and comfortably inside the BSP’s 2–4 percent target band. Economists said the benign inflation environment reinforces the case for continued easing.
The economy grew 5.5 percent in the second quarter, slightly faster than the 5.4 percent pace in the first quarter but well below the 6.5 percent expansion a year earlier. Officials said the moderation underscores the need for supportive policy to sustain momentum.
Last month, Department of Economy, Planning and Development Secretary Arsenio Balisacan said the Philippines remains one of Asia’s fastest-growing economies, behind Vietnam but ahead of China and Indonesia. Still, he acknowledged that weak private investment has weighed on performance.
‘To revive businesses’
Economists agree that lowering borrowing costs could help revive business spending and encourage household consumption, especially at a time of global trade weakness and tighter fiscal conditions.
Market participants added that future Fed easing is likely to dictate the BSP’s pace. Matching cuts, they said, would maintain healthy differentials and reduce volatility in capital flows, while still anchoring the peso.
With inflation muted, global conditions supportive, and domestic demand needing a lift, analysts said the question is no longer if the BSP will cut again, but how much room remains to balance growth with stability.
