BSP may pause in October to guard policy space, BMI says
The Bangko Sentral ng Pilipinas (BSP) may keep rates unchanged in October to preserve flexibility in case the United States Federal Reserve finally resumes easing, BMI said.
In a note to clients on Monday, the unit of the Fitch Group pointed to the need to keep a healthy gap between the policy rates of the Fed and the BSP—which is now at its “tightest.”
The BSP has so far cut its key rate by a cumulative 150 basis points under the current cycle, while the Fed has remained on hold since delivering a quarter point cut in December 2024.
“By holding steady, BSP could regain some policy space, as our Americas team expects the US Federal Reserve to cut interest rates in September,” BMI said.
“Dollar weakness has helped the peso maintain its strength against the greenback despite BSP’s rate cuts, but this could reverse if a more pronounced global growth slowdown leads investors to seek safety by selling emerging market assets,” it added.
Last week, the central bank slashed the overnight borrowing rate by a quarter point to 5 percent, a level that Governor Eli Remolona Jr. described as the “Goldilocks” level—neither inflationary nor restrictive to economic growth.
Reaching the neutral level took a total of 1.5 percentage points cuts to the policy rate during the current easing cycle, supported by tame consumer prices that the BSP expects to rise an average of 1.7 percent this year, below the official 2 to 4 percent target range.
Price risks remain, Remolona cautioned, particularly from energy and food costs, though he said inflation was likely to stay within target even if those risks materialize.
The central bank could keep its policy rate unchanged through the end of the year if inflation remains subdued and demand holds up, the BSP chief said, signaling that the easing cycle is nearing its end.
Still, Remolona left the door open to further easing, saying the Monetary Board could consider another reduction at its October or December meetings if demand shows signs of weakening.
Lingering trade tensions between the US and its partners, he warned, could weigh on global activity and in turn on the Philippines’ growth prospects.
“A further escalation in the tariff war globally could impact consumer and investment sentiment more than we currently expect, leading to a larger drop in output,” BMI said.
“If such a scenario materializes with inflation expectations remaining largely anchored, the BSP would prioritize the economy and implement larger policy rate cuts,” it added.
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