BENGALURU : The Philippine central bank will cut its key policy rate by 25 basis points both in October and December to support economic growth as inflation is expected to stay under control, according to a majority of economists in a Reuters poll.
Expectations of inflation returning to the Bangko Sentral ng Pilipinas’ (BSP) 2 per cent-4 per cent target helped the central bank kick-off its easing cycle in August. Ever since, inflation has dropped to 1.9 per cent, supporting the prospect of further rate reduction.
Governor Eli Remolona recently said that a 25-basis-point reduction would be a norm if the economy was not poised for a hard landing.
All 23 economists in the Oct. 8-14 Reuters poll expect the BSP to cut its overnight borrowing rate by 25 basis points (bps) to 6.00 per cent on Oct. 16.
That would be followed by another quarter-point cut to 5.75 per cent in December, according to median forecasts, with a strong majority, 16 of 21 economists seeing the policy rate at 5.75 per cent, four expecting it at 6.00 per cent and one at 5.50 per cent.
“The decline in headline inflation reinforces our view that the BSP will continue to cut rates this year after kicking off its easing cycle early. We reiterate our forecast for BSP to cut by 25 bps at each of the last two meetings of the year,” said Euben Paracuelles, chief ASEAN economist at Nomura.
“The Fed’s rate cuts also support further easing by the BSP, but we still think it is unlikely to be more aggressive with 50 bps clips – just like the Fed last month.”
While the U.S. Federal Reserve was expected to reduce rates by another 150 bps by end-2025, the BSP was forecast to match its American counterpart in cumulative cuts.
Meanwhile, inflation was forecast to remain close to the central bank’s mid-point target of 3.0 per cent and average 3.4 per cent this year and 3.0 per cent next.
Economic growth was expected to average 5.8 per cent and 5.9 per cent this year and next, respectively, missing the government’s growth target of 6 per cent-7 per cent.
“With growth set to struggle and inflation likely to remain low, further easing (by the central bank) is likely over the remainder of this year and in the first half of next year,” noted Gareth Leather, senior Asia economist at Capital Economics.
“On the plus side, lower interest rates (the central bank began its easing cycle in August) and falling inflation (which should boost household incomes) should provide some support to consumption.”
(Other stories from the October Reuters global economic poll)
