Philippines: Central Bank decreases rates in December
Cut had largely been expected: At its meeting on 19 December, Bangko Sentral Pilipinas (BSP) decided to reduce the Target Reverse Repurchase Rate (RRP) by 25 basis points to 5.75%. The cut was largely anticipated by market analysts, though it deviated from the decisions of other central banks in the region that stood pat in December.
Within-target inflation and well-anchored inflation expectations support cut: The BSP estimated that inflation will stay within the target range over the policy horizon, raising only slightly the risk-adjusted inflation forecast for 2025 to 3.4% from 3.3% previously. It also assessed inflation expectations to be well anchored. Meanwhile, the authority saw risks to the inflation outlook as slightly tilted to the upside due to potential increases in transport fares and electricity rates, while it deemed subdued domestic demand and the impact of lower import tariffs on rice as the main downside risks.
Further rate cuts expected in 2025: The BSP’s press release was void of explicit forward guidance, but in a subsequent press conference, Governor Eli Remolona stated that the Bank is prepared to cut rates further in 2025, potentially at its next meeting on 15 February. That said, Remolona was less dovish than in prior statements, indicating that the previously planned 100 basis points of cuts over 2025 was too much. That said, our Consensus for the RRP Rate at the end of 2025 has remained broadly unchanged in the last year; our panelists see between 50–175 basis points of cuts by December.
Panelist insight: Nomura analysts Euben Paracuelles and Nabila Amani said:
“We maintain our forecast of 25bp in rate cuts in each of the first three meetings in 2025, before pausing from there. This would bring the RRP rate to 5% by May 2025, which is similar to Governor Remolona’s assessment of the level of the neutral rate (as mentioned in the previous meeting). As is clear in BSP’s guidance in its last three decisions, the next decision by BSP will largely be driven by the inflation outlook for 2025 and 2026. If headline inflation continues on a downward path, as we expect, BSP in our view can look to further remove the restrictiveness in the monetary stance to support a recovery in the growth outlook, which is facing downside risks.”
United Overseas Bank analysts Julia Goh and Loke Siew Ting commented:
“We bring forward our expectation of an end to BSP’s easing cycle to mid-2025 from 1Q26 previously. In other words, we now project three more 25bps interest rate cut by BSP to a higher terminal rate of 5.00% by mid-2025 (vs previous estimate of 4.50% by 1Q26). Above all, global developments post US President-elect Donald Trump’s inauguration will be key wildcards to our interest rate call for next year.”