MANILA, Philippines — Standard Chartered Bank expects the Philippine economy to expand by six percent this year, with below-target inflation giving the Bangko Sentral ng Pilipinas (BSP) enough room to substantially cut interest rates in the second half.
In a virtual press briefing, StanChart economist and FX analyst Jonathan Koh said the six percent gross domestic product (GDP) forecast is at the midpoint of the government’s 5.5 to 6.5 percent target.
“Growth at six percent is still possible for the year as the base effect is actually low,” he said, adding that private consumption will remain steady and could contribute to around four percentage points to GDP.
Koh said second-quarter GDP growth is seen at 5.9 percent, faster than the 5.4 percent print in the first quarter, despite some normalization in import activity after an election-related surge.
“But even if the second-quarter growth is not that strong, base effects actually will really bring second-half growth to above six percent,” he said.
At the same time, StanChart projects headline inflation to ease further and average 1.8 percent for the year, well below the BSP’s two to four percent target band. This benign inflation outlook should give the central bank enough policy space to further unwind its tight monetary stance.
StanChart sees a total of 75 basis points in additional rate cuts this year, to be delivered in three 25-basis-point reductions in August, October and December. This would bring the key policy rate down to 4.5 percent from the current 5.25 percent.
“I’m a little bit more aggressive than consensus. Growth is below potential and inflation is easing. That gives BSP space to cut,” Koh said.
He said easing food, oil, rental and restaurant prices are likely to dampen inflation further in the coming months, while global rice prices continue to decline.
However, Koh said that concerns over imported inflation, especially if the peso weakens against the dollar, could prompt the BSP to be more cautious in its easing cycle.
Upside risks also include potential electricity rate adjustments and any legislated minimum wage hike, although the chances for both appear limited for now.
On investments, StanChart said the expected rate cuts could support credit growth, but uncertainties both globally and domestically are still affecting business sentiment.
The British bank also expects the peso to end 2025 at 57.50 to $1, recovering after some weakness in the third quarter. Koh cited seasonal remittances and a better bond supply environment as factors that could support the local currency later this year.
Still, structural headwinds such as a wide trade deficit and weak services exports remain challenges to peso stability.
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