BSP tipped to deliver fresh policy rate cut

• Fifteen out of 16 economists polled by the Inquirer last week expected the powerful Monetary Board to slash the policy rate by a quarter point at its meeting on Feb. 13, and this could bring the benchmark rate to 5.5 percent.
• The analysts pointed to the disappointing gross domestic product (GDP) growth of 5.6 percent as a strong justification for another cut.
• But an economist at Moody’s Analytics believed that it might be too early to trim rates this week, citing the need for the BSP to be prudent in the face of global uncertainties and heightened trade protectionism.

The Bangko Sentral ng Pilipinas (BSP) is widely expected to deliver another interest rate cut this week, as benign inflation allows monetary authorities to prioritize an economy that grew at an underwhelming pace last year.

Fifteen out of 16 economists polled by the Inquirer last week expected the powerful Monetary Board to slash the policy rate by a quarter point at its meeting on Feb. 13.

If realized, such a decision would bring the benchmark rate that banks typically use as a guide when pricing loans to 5.5 percent. It would also mark the fourth rate cut under the current easing cycle, which started in August last year.

The majority of analysts in the Inquirer survey agreed that the disappointing gross domestic product (GDP) growth was a strong justification for another cut. In 2024—a year that saw disruptions from powerful typhoons—GDP grew at an average of 5.6 percent, missing both the state’s target and market consensus.

And the BSP has enough room to put more focus on growth. Latest data showed inflation was steady at 2.9 percent in January, sitting comfortably within the 2 to 4 percent target band of the BSP due to declining rice prices and slower increase in utility costs.

“Having attained its inflation objective in 2024 alongside a target-consistent inflation outlook this year, the BSP has room to trim its policy rate following another disappointing GDP growth,” Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said.

Emilio Neri Jr., lead economist at Bank of the Philippine Islands, said the recent stability of the peso could also clear the path for another easing action.

“While a rate cut could exert pressure on the peso, improving market sentiment may mitigate this,” Neri said.

As it is, the projected 25-basis point (bp) rate cut this week could be one of the two quarter-point reductions that Governor Eli Remolona Jr. sees for 2025.

While that expected depth of easing was shallower than his previous signal of a 100-bp total cuts for this year, Remolona said such a pace of monetary policy loosening would give the economy a little insurance against inflation risks.

Too soon?

Interestingly, Sarah Tan, economist at Moody’s Analytics, believed that it might be too early to trim rates this week, citing the need for the BSP to be prudent in the face of global uncertainties and heightened trade protectionism.

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Tan was the only economist in the Inquirer poll that expected the central bank to keep rates steady.

“While GDP growth for 2024 fell below the government’s growth target, prompting some additional support, it seems too soon to deliver another rate cut given uncertainties in the global climate,” she said.

“The BSP will be prudent in monitoring global developments that could reinflate inflation and weaken the strength of the peso,” she added.

But Unionbank’s Asuncion argued that the lower borrowing costs could help shield domestic demand from external headwinds.

“While a quarter point rate cut is not the magic bullet that can slay macro risks, the BSP’s sustained rate action contributes to lower costs of funding and doing business while sowing the seeds for investment-driven growth that can help create jobs and incomes,” he said.