The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) is likely to slash interest rates by 25 basis points at its next meeting in February 2025, BMI, a Fitch Solutions Company, said Thursday.
“The BSP is still on track to deliver another 25bps cut at its next meeting. But broadly speaking, we think that the pace of easing will slow against the backdrop of a more hawkish Fed,” BMI said in a report.
The Monetary Board is scheduled to hold its first meeting of the year on Feb. 20.
“To be clear, we think that the BSP will frontload interest rate cuts to support the economy. But its hands are tied when it comes to the extent of its loosening cycle,” BMI said.
Given this, BMI revised its Philippine policy rate forecast from 4.50 percent to 5 percent in 2025.
“This would represent 50 bps fewer rate cuts compared to our previous projection,” BMI said.
“We are only projecting about 75 bps of cuts this year, with 50bps in the first half and the remaining 25 bps in the second half,” it said.
BMI said the constraint emanates from the US Federal Reserve which clearly signaled its appetite for fewer cuts this year.
“The Fed has dialed back on its own projections for interest rate cuts following Trump’s return to the White House. Our team believes that monetary settings in the US will remain restrictive and are expecting just 100 bps of cuts in 2025 compared to 150 bps previously,” it said.
BMI said the BSP’s room for significant interest rate cuts is limited compared to the Fed, given the need to maintain external stability.
“This is not to say that the BSP must match the Fed’s timing when it comes to cuts. The BSP has clearly demonstrated that it is prepared to act independently. For example, the bank cut its benchmark policy rate ahead of the Fed last August. We think that this time it will be similar, with the BSP enacting the bulk of its policy rate cuts in the first half and the Fed in the second half,” BMI said.
The BSP ended the year with a 25-bps cut on Dec. 19. The central bank delivered a quarter-percentage-point cut at every meeting since August, taking the benchmark policy rate from 6.50 percent to 5.75 percent in the course of 2024.
