BENGALURU : The Philippine central bank will cut its key policy rate by a quarter point for the third time in a row on Thursday as inflation stays under control and the economy weakens, according to a Reuters poll which also forecast three more cuts next year.
Despite inflation rising for a second month, reaching 2.5 per cent in November, it has remained within Bangko Sentral ng Pilipinas’ (BSP) 2 per cent-4 per cent target since August when the bank began its easing cycle.
That, coupled with slowing economic growth, prompted BSP Governor Eli Remolona to affirm last month it was “still in the easing cycle”.
All 24 economists in the Dec. 10-16 Reuters poll expect the BSP to cut its overnight borrowing rate by 25 basis points to 5.75 per cent at its Dec. 19 meeting.
A strong majority of respondents predicted an additional quarter-point cut every quarter over the next three quarters, bringing the rate to 5.00 per cent by the end of September 2025.
“We expect lower domestic energy prices and … rice prices to drive overall CPI (consumer price index) disinflation. The balance of payments is also in good shape despite some FX pressure. Hence, we expect the BSP will cut 25 bps on Thursday,” Jin Tik Ngai, EM Asia economist at JP Morgan, said.
“In the ASEAN region, BSP has the most room to cut rates. The fed funds rate is key to external financial conditions. Thus, premised on inflation staying at the lower bound of BSP target … the BSP could go pound for pound with the Fed rate and deliver 75 bps of cuts next year.”
The BSP currently has one of the highest policy rates in the region at 6.00 per cent. The U.S. Federal Reserve is also expected to cut by 25 bps a day before the Asian central bank makes its move.
Regional peers holding meetings this week – Bank Indonesia and Bank of Thailand – are both expected to keep their interest rates unchanged.
Next year will follow a similar trend, with the BSP likely to ease monetary policy in lock step with its U.S. counterpart. However, economists said there could be fewer cuts if there is another hawkish repricing of the Fed’s terminal rate.
More than 60 per cent of economists, 12 of 19, who forecast through the end of next year, expect the key policy rate to be 5.00 per cent by then, compared with a median of 4.75 per cent seen in an October poll. Five expect it at 4.75 per cent, one at 4.50 per cent and one at 5.25 per cent.
“If inflation continues on a downward path, BSP will likely look to further remove the restrictiveness in monetary stance to support a recovery in domestic demand,” Euben Paracuelles, chief ASEAN economist at Nomura, said. He forecast the terminal rate at 5.00 per cent.
“A shallower cutting cycle by the Fed will unlikely be a significant constraint, taking into account BSP’s laissez-faire approach on currency weakness, if interest rate differentials with the U.S. become narrower,” Paracuelles added.
(Other stories from the December Reuters global economic poll)
