BSP faces dilemma over rate cut path

Geopolitical, inflation risks
MANILA, Philippines — Economists have weighed in on the Bangko Sentral ng Pilipinas (BSP)’s monetary policy outlook for the remainder of 2025, with some predicting further rate cuts while others caution against aggressive easing due to geopolitical and domestic inflation risks.
BPI lead economist Jun Neri highlighted that while another rate cut remains possible this year, recent developments such as the ongoing conflict in the Middle East have made further monetary easing more difficult.
The sharp rise in oil prices stemming from the conflict is adding pressure on inflation and the peso, posing a dilemma for the BSP.
Neri warned that if the geopolitical tensions escalate, it could prevent the BSP from cutting rates further.
“A cautious stance remains warranted, especially given the risk of a hawkish shift in US monetary policy if inflation rises further due to tariffs and elevated oil prices. An overly aggressive easing cycle could leave the economy vulnerable to abrupt rate hikes should the Federal Reserve tighten unexpectedly,” Neri said.
Neri also said domestic challenges, including potential wage hikes and supply disruptions caused by the upcoming typhoon season, could further strain inflation, necessitating a cautious approach.
For Neri, the BSP’s top priority should be containing inflation, which has been the primary factor behind the slowdown in gross domestic product growth rather than the current interest rate levels.
“Keeping inflation stable, even without additional cuts, will likely boost the economy. A resurgence in inflation, even with the rate cuts, could hold back growth again,” Neri said.
Meanwhile, ANZ Research economists Arindam Chakrabort and Sanjay Mathur forecast two more 25-basis-point rate cuts, bringing the BSP’s terminal rate to 4.75 percent by the end of 2025 from the current 5.25 percent.
According to Chakrabort and Mathur, the BSP needs to address real interest rates, which have risen to nearly a 10-year high amid easing inflation. With the BSP’s inflation forecast at 1.6 percent for 2025, the economists argue that a terminal rate of five percent would still leave real rates elevated at 3.4 percent, necessitating further rate cuts.
On the other hand, Citi Research maintains its forecast of three more 25-basis-point rate cuts until the first quarter of 2026, although they acknowledged the risks posed by geopolitical developments and fluctuating oil prices.
Citi economists expect the BSP to maintain an accommodative stance, with real policy rates slightly below the neutral range of 1.50 to two percent.
- Latest
- Trending