THE BANGKO SENTRAL ng Pilipinas (BSP) is expected to resume its rate-cutting cycle as early as April following slower-than-expected inflation in February, analysts said.
In a report, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the “door is now wide open for the BSP to resume easing in April.”
“Given the low inflation environment, we see a possible policy rate cut at the next Monetary Board meeting in April,” Metropolitan Bank & Trust Co. (Metrobank) Research said.
Headline inflation sharply eased to 2.1% in February from 2.9% in January and 3.4% a year ago. This also marked the slowest inflation print in five months.
This brought average inflation to 2.5% in the first two months, well within the central bank’s 2-4% target.
Pantheon expects inflation to settle at 2.7% this year as risks to the inflation outlook are tilted to the downside.
Nomura Global Markets Research analysts Euben Paracuelles and Nabila Amani likewise expect inflation to average 2.7% this year.
On the other hand, Metrobank’s full-year inflation forecast is at 3.1% “barring major supply-side shocks.”
The central bank said the risks to the inflation outlook have become “broadly balanced” for this year and the next. The BSP expects inflation to average 3.5% this year.
Analysts said the within-target inflation outlook will allow the BSP to continue easing.
Mr. Chanco said their baseline view calls for a rate cut at the Monetary Board’s April 3 meeting.
“Moreover, we’re keeping to our view that the BSP will cut by a total of 100 basis points (bps) by yearend to 4.75%, one more 25-bp cut than the consensus currently expects,” he added.
Nomura expects a total of 75 bps worth of cuts this year through the Monetary Board’s meetings in April, August and December.
“BSP still assesses the pass-through from weakening FX (foreign exchange) as limited and has ample FX reserves to intervene and stem currency volatility, and we think it will maintain a laissez-faire approach to FX policy,” it added.
Despite keeping the benchmark rate steady at 5.75% at its February policy review, BSP Governor Eli M. Remolona, Jr. has said they are still in easing mode.
He signaled the possibility of up to 50 bps worth of rate reductions this year.
The central bank slashed borrowing costs by a total of 75 bps last year through increments of 25 bps at its last three meetings of the year.
GlobalSource Partners country analyst Diwa Guinigundo said the lower February inflation will have a “material bearing on both the (BSP’s) baseline and risk-adjusted inflation forecasts for 2025 and 2026 unless a big surprise counterweights that favorable factor.”
“Anchored on this, and assuming that the balance of risks starts to twist towards the midpoint, or the downside, the BSP may be expected to resume easing its monetary policy stance.”
However, Mr. Guinigundo said “some precaution is critical.”
“We cannot dismiss the brewing price pressures in the US as a result of the Trumpian higher tariff (more expensive imports), tax cuts (more spending) and strict immigration policies (higher labor costs). They are all potentially inflationary.”
Reuters reported another reprieve of levies aimed at Mexico and Canada announced by President Donald J. Trump on Thursday offered little relief to whiplashed markets.
The exemption expires on April 2 when Mr. Trump said he will impose reciprocal tariffs on all US trading partners.
“The US Fed would then be more careful in its easing stance such that if the BSP exercises its flexibility to ease monetary policy at least twice during the year, any reduction in interest rate differential with the US could trigger capital flows and weakness in the peso,” Mr. Guinigundo said.
Fed Chair Jerome H. Powell said on Friday the US central bank will be in no rush to cut rates while it waits for more clarity on how policies of the new Trump administration affect the economy.
Mr. Guinigundo said US inflation could “act up again” as global oil markets may be disturbed.
“Indeed no one wins in a trade war, and higher though elusive inflation could be a silent proof,” he added. — Luisa Maria Jacinta C. Jocson
