Analysts allocated on the trajectory of the central bank for the rest of 2025 as a conflict escalates in the Middle East, peak oil prices shrouding the outlook for inflation.
“We still see room for further policies that support the economic momentum and expect to slow down by 25 basis points (BP) by the end of the year,” Moody’s analytical economist Sarah Tan said in an email.
She added: “The easing policy will also continue until 2026. In a complex external environment, monetary easing will support the domestic economy.”
Bangkok Sentral NG Pilipinas (BSP) on Thursday lowered its target reverse buyback rate from 5.5% to 5.25%, which regulates inflation outlook and exceeds expectations for the first quarter economic growth.
BSP Governor Eli M. Remolona, Jr. Friday said the rate of decline in August was dependent on the data and further escalated in the Middle East conflict.
“We can lower the tax rate in August, or we can lower the tax rate in October instead of August. It’s a possibility. But we’re looking at the data every day and we’ll decide what action should be taken in August,” he said in an interview with CNBC.
The Monetary Commission’s remaining policy meetings this year are scheduled to be held on October 28, October 9 and December 11.
Deutsche Bank Research also expects BSP to drop by 25 basis points in August.
“Our August lowered a 25-tax benchmark because we think annual inflation could stay at the low end of the BSP’s 2-4% target, but prohibited escalation in the Middle East conflict,” it said in a note.
Ms Tan said the policy outlook for BSP has become “slightly frustrating” due to escalating conflicts in the Middle East and uncertainty arising from the Trump administration’s trade policy.
“Political volatility in countries that primarily produce oil makes the market vulnerable to sudden shocks. This could boost global oil prices due to the substantial dependence on imported oil on the Philippines, which is about the Philippines. This could increase price pressure in the domestic economy and increase the risk of devaluation of PESO,” she said.
But Moody’s analysis has not seen inflation violate the central bank’s 2-4% target this year. BSP expects inflation to be 1.6% this year, 3.4% in 2026 and 3.3% in 2027.
On the other hand, Australian Research and Nomura Global Market Research said BSP could be reduced twice this year.
“Given that the inflation forecast for BSP in 2025 is 1.6% and the final rate is 5%, this means that the actual rate will still rise to 3.4%. Therefore, we believe that BSP must lower BSP twice in Q3 and Q4 2025, while the end rate will be increased to 4.75% in Q4 2025,” ANZ Research said. ”
Nomura Global Markets Research said BSP’s August and October meetings are expected to be “mainly supported by low inflation payments in the coming months”.
However, the main risk to its view is the timing of these next cuts.
“The escalation of the Middle East conflict with further rises in oil prices may prevent BSP cuts, but rather prompts it to keep policy interest rates unchanged in the short term,” it said.
“In today’s policy statement, the BSP also stressed that the Monetary Commission will continue to assess the impact of previous monetary policy adjustments, which, in our opinion, would suggest that the BSP may be suspended if the domestic economy shows signs of improvement in the short term.”
Emilio S. Neri, chief economist at the Bank of the Philippines (BPI). In the June 19 report, it is still possible to lower tax rates this year, as central banks should be cautious because an overly aggressive easing cycle could put the economy at risk of sudden harm to the U.S. Federal Reserve.
He added that if conflicts in the Middle East escalate further, the monetary committee’s relaxation cycle could be disrupted.
“Including inflation should remain a top priority, as high inflation has been the main reason for slowing GDP growth – greater than current interest rate levels. Keeping inflation steady may boost the economy even without additional cuts. Even with a slowdown in growth, it may increase the rise of inflation.”
pause
Meanwhile, some analysts say BSP may pause its slow cycle for the rest of the year.
“Currently, the development of commodity markets, global demand and trade tensions are the biggest risk factors for inflation and therefore the easing path for BSP,” said Krisjanis Krustins, Asia-Pacific sovereign director of Fitch Ratings in an email.
Mr Krustins said he does not expect the BSP to lower the tax rate this year. He said BSP could resume easing with $2.5 billion cuts in 2026, bringing the tax rate to 5%.
“There is relatively small differences between the Philippines and the United States compared to history,” he said.
Remolona said Friday that the interest rate difference between the Federal Reserve and BSP could narrow to 50 basis points.
Union Bank of Philippines, Inc.
“We believe this assessment will focus on transmission lag and the current high real interest rate environment to determine whether there is a need to relax,” he said.
The March 28 BSP cuts the RRR of quasi-bank-functioning environment and commercial banks and non-bank financial institutions by 200 basis points to 5%. Digital banks also saw their RRR down by 150 basis points to 2.5%, while the thrift lender’s ratio was down by 100 bps to 0%.
Mr Assen said BSP could reduce the target reverse repurchase rate by 3% to 3.5% before the moratorium, in line with pre-pandemic levels and central bank inflation targets. – AMC SY
