THE Bangko Sentral ng Pilipinas (BSP) is expected to adopt a cautious stance on rate reductions in 2025, analysts said, wary of potential global price risks.
“We continue to subscribe to the view that the BSP will avoid cutting rates aggressively in 2025 as global price risks could thwart outsized monetary easing actions,” Bank of the Philippine Islands (BPI) senior economist Emilio Neri said.
“While the first half of the year may present opportunities, cutting rates in the latter half could be more challenging, as the Federal Reserve’s outlook could shift in response to President (Donald) Trump’s potentially inflationary policies,” he added.
The BSP policymaking Monetary Board last week cut key interest rates by another 25 basis points (bps), bringing the benchmark rate to 5.75 percent before the year ended.
The central bank’s policymaking Monetary Board began easing in August, ordering a 25-bps cut as inflation returned to the 2.0- to 4.0-percent target, and followed this with another 25 bps in October.
BSP Governor Eli Remolona Jr. said that cuts totaling 100 bps next year “may be a bit much” as they expect inflation to pick up next year but still within the target range.
Monetary authorities expect inflation to remain within the 2.0- to 4.0-percent target, but the risk-adjusted forecast for this year was raised to 3.2 percent from 3.1 percent.
The projection for next year was also adjusted to 3.4 percent from 3.3 percent, while that for 2026 was kept at 3.7 percent.
The baseline forecasts for this year and the next, meanwhile, were raised to 3.2 percent and 3.3 percent, respectively, from 3.1 percent and 3.2 percent.
For 2026, the BSP expects inflation to settle at a slightly higher 3.5 percent instead of 3.4 percent.
Remolona explained that the BSP was proceeding with small, gradual rate cuts because there was still uncertainty about inflation.
Neri, meanwhile, said that higher tariffs and mass deportations might reignite inflation in the US, which could force global central banks to pivot to monetary tightening.
“Considering these upside risks to inflation, we continue to see the BSP reducing the RRP (reverse repurchase) by a mere 50 basis points as a base case for 2025,” Neri said.
Meanwhile, Metrobank Research said that the central bank would continue with its easing cycle in the next two years amid target-consistent inflation.
“The BSP is likely to match its pace of three rate cuts next year while monitoring the impact of Trump’s policies on the exchange rate,” Metrobank Research said.
“The BSP will remain watchful for possible episodes of extreme pressure on PHP (Philippine peso) given its implications on inflation and price expectations,” it added.
It expects the central bank to deliver 75 bps in rate cuts in 2025 and the succeeding year.
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