THE Bangko Sentral ng Pilipinas (BSP) could be compelled to hike its key policy rate in the near future to maintain investor interest as US President Donald Trump’s One Big Beautiful Bill Act begins to send ripple effects through the global economy.
In a commentary, Metrobank Wealth Insights said the megabill, which features sweeping tax cuts and massive federal spending increases, could add as much as $3.4 trillion to the US deficit over the next decade.
“As the US seeks funding to address the increased expenditure, interest rates are expected to edge higher, perhaps as early as next year,” it said.
“Elevated US rates would in turn attract foreign capital to the US away from emerging market economies like the Philippines,” it added.
Metrobank said this could prompt the BSP to increase its benchmark reverse repurchase rate to keep local yields competitive and avoid disruptive capital outflows. But while this may help maintain investor interest, it also risks choking domestic demand.
“On the flip side, higher interest discourages consumption and business investment, potentially slowing the Philippines’ economic growth,” Metrobank said.
The central bank is currently in an easing cycle, having trimmed its policy rate by a total of 125 basis points to 5.25 percent as of June 2025.
It started cutting rates in August of last year marking the first reduction after consecutive hikes that had raised the key rate to 6.5 percent, the highest level in more than 17 years.
With inflation currently undershooting the target and economic growth having fallen below expectations, the BSP is expected to remain accommodative, with two more rate cuts likely this year.
Its next policy meeting will be on Aug. 28, followed by two more on Oct. 9 and Dec. 11.
“While the US faces the direct effects of Trump’s megabill, the Philippines will feel the aftershocks,” Metrobank said. “After 2027, the federal funds rate is forecasted to tick up after rate cuts in the short-term.”
“This can, in turn, push up the BSP’s reverse repurchase rate, hindering domestic consumption,” it added.
Metrobank also said that if US gross domestic product (GDP) growth is dampened by the crowding out of private investment, demand for exports and overseas Filipino worker (OFW) remittances may also take a hit.
The US is one of the country’s top trading partners, accounting for 16.6 percent of total Philippine exports in 2024 or $12.14 billion.
Meanwhile, there are roughly 2 million OFWs in the US and the country was the source of a record $39.3 billion in remittances last year.
“If OFWs get pay cuts or even lose their jobs, this would cap remittances headed for home,” Metrobank said, noting that household consumption makes up more than three-quarters of the domestic economy.
“A decline in remittances pulls down household expenditure, rocking the boat for growth,” it added.
Trump’s megabill also contains a 1-percent tax on remittances, which a Finance department official said would likely have a minimal impact on Philippine economic growth but could significantly burden households dependent on money sent home by relatives abroad.
“For countries like the Philippines, whose consumption-driven economy also relies on remittances from overseas Filipinos, the proposed levy raises concerns about household welfare, economic resilience and the growing vulnerabilities of cross-border livelihoods,” Finance Undersecretary Domini Velasquez told The Manila Times earlier this month.
The tax is scheduled to take effect at the start of next year.
Velasquez said that if the 1-percent levy were applied to an estimated $6.57 billion in remittances sent by US-based Filipinos, the effective reduction in funds reaching the Philippines could reach $65.7 million.
This would translate to a 0.1-percent drop in household consumption, equivalent to around $39.7 million or P2.3 billion.
“These remittances play a critical role in the daily lives of many Filipinos. They help fund education, health care, food and other essential household needs,” Velasquez said.
“Beyond immediate consumption, they support savings and investments, contributing to broader economic development,” she added.
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