‘BSP has room for one more policy rate cut’

MANILA, Philippines — Analysts expect the Bangko Sentral ng Pilipinas (BSP) to deliver one more rate cut this year after the Monetary Board trimmed its policy rate by another 25 basis points (bps) to five percent last week.

In a note, BMI Country Risk & Industry Research said the BSP has space to further ease as inflation remains subdued and growth momentum is softening.

“We maintain our forecast for another 25-basis-point cut in the fourth quarter. While near-term price pressures from the rice import ban and higher electricity prices are likely, we still expect inflation to remain below the lower bound of BSP’s two to four percent target range,” BMI said.

The Fitch Group unit noted that the peso has held up despite the narrowing rate differential with the US Federal Reserve, but cautioned that a sharper global slowdown could trigger outflows from emerging markets.

BMI sees the policy rate settling at 4.75 percent by end-2025 and declining further to 4.25 percent by end-2026, with inflation averaging 1.6 percent this year and 2.5 percent in 2026.

Nomura analysts Euben Paracuelles and Nabila Amani shared the same outlook, projecting one more 25-basis-point cut in October to bring total easing this year to 175 basis points.

“We expect inflation in the coming months will remain below BSP’s two to four percent target, before rising further in 2026. BSP’s signal that it is close to the end of its easing cycle looks sensible,” Nomura said.

The Japanese investment bank also said that BSP is also eyeing additional reserve requirement ratio (RRR) reductions to improve policy transmission.

At five percent, BSP Governor Eli Remolona Jr. reiterated that the RRR remains “too high,” although the timing of further cuts is still under study.

Speaking at the Development Budget Coordination Committee (DBCC) budget hearing at the Senate yesterday, Remolona said the economy remains resilient despite slower global activity.

“We think the economy is in good shape. Inflation has been tamed, the banking system remains strong, and our external position is sound. Indeed, our economy is in what I would call a sweet spot,” Remolona told lawmakers.

The BSP chief noted that inflation is down to 0.9 percent in July, even negative for the poorest 30 percent of households, and is expected to remain within target in the next two years.

“This lowering of the policy rate stimulates demand, it helps the economy grow, and because we did it in a very measured approach, it hasn’t led to inflation,” Remolona said.

For 2026, the BSP projects inflation at 3.3 percent, with the peso trading between 56 and 58 against the dollar.