THE BANGKO SENTRAL ng Pilipinas (BSP) might deliver a sixth straight rate cut at its first policy meeting next year as weak domestic and external economic prospects could drag growth, Deutsche Bank Research said.
It said in its latest Asia Week Ahead report released on Monday that the Monetary Board (MB)could go for another 25-basis-point (bp) cut as early as its February review on expectations of a prolonged economic slowdown.
“[The] weakened — or still weakening — domestic economic outlook on the back of governance issues and the possible dampening of external trade activity as tariffs bite could justify further rate cuts to support growth, especially as fiscal policy remains constrained,” it said. “We maintain our view that BSP would cut 25 bps again in its next MB meeting.”
“Governor Remolona’s shift of views between hawkish (end of easing) and slightly dovish (maybe one more rate cut) during the Monetary Board press briefing and subsequent media interviews suggests the still-high degree of uncertainty on the economy, in our view.”
Last week, the Monetary Board lowered benchmark borrowing costs by 25 bps for a fifth meeting in a row to bring the policy rate to 4.5%, the lowest in over three years.
It has now reduced rates by a cumulative 200 bps since its easing cycle began in August 2024.
BSP Governor Eli M. Remolona, Jr. said at a briefing after Thursday’s policy meeting that benign inflation gives them room to help support weak domestic demand amid lingering governance concerns that have affected investor confidence, but stressed that they are nearing the end of their current easing cycle, with further cuts — if any — likely to be limited and dependent on data.
On Friday, he left the door open to one last 25-bp reduction, with the economy’s recovery likely to take longer than expected.
He said gross domestic product (GDP) growth could slow further to 3.8% this quarter from the over four-year low of 4% in the July-September period. This would bring the full-year average below 5% versus the government’s 5.5-6.5% goal.
The BSP chief said that they expect the economy to recover by the second half of 2026, with growth seen moving closer to the government’s 6-7% target only by 2027.
Deutsche Bank Research said this view of a prolonged economic slowdown is in line with their own. It earlier trimmed its GDP growth forecast for the fourth quarter to 4.1% from 5.4%.
Meanwhile, Ronilo M. Balbieran, an economist at the University of Asia and the Pacific, said the BSP should have delivered a 50-bp cut given its outlook for slower fourth-quarter growth.
“They should have cut 50 bps last week right off the bat,” he told Money Talks with Cathy Yang on One News on Monday. “If you were more pessimistic, why didn’t you cut it by 50 bps and then arrest it toward April? But 50 bps now is better than 25 today and 25 (in) February.”
He added that the BSP’s 3.8% forecast for fourth-quarter GDP growth “might be too low” as the peso’s weakness against the dollar in November would boost the value of migrant Filipinos’ remittances to help drive economic activity, along with the increase in consumer spending amid the holidays, and potentially bring expansion to 4.5%-5% in the period.
“That might actually rescue the multiplier of the OFW (overseas Filipino workers) remittances to their families here in the Philippines and some last-minute foreign tourists coming here in the Philippines,” he said. “So, we’re hoping that will actually catch the slack.”
Full-year GDP growth could be between 4.9% to 5.1%, Mr. Balbieran added.
Economic managers have conceded that the 5.5%-6.5% target for the year is now unattainable after the third-quarter GDP print slumped to a four-year low of 4% amid the ongoing flood control controversy, which dampened government and household spending. — Katherine K. Chan
