THE Bangko Sentral ng Pilipinas (BSP) could cut rates further this year if the Trump administration goes ahead with the 17% tariff initially announced on Philippine imports, BMI Country Risk & Industry Research said.
“If anything, the case for more easing has strengthened. If negotiations fall through, and a 17.0% tariff on the Philippine is enacted, we will revise our policy rate forecast to pencil in more cuts,” it said in a note on Monday.
Fitch Solutions unit BMI said the BSP may have to continue its easing cycle to help the government achieve its economic growth targets amid risks posed by a looming trade war.
The Development Budget Coordination Committee (DBCC) targets gross domestic product (GDP) growth of 6-8% this year.
First-quarter GDP data will be released on May 8.
“Trump’s tariffs have compounded the challenges faced by the Philippine economy, having already underperformed in Q4. Prompt policy support will be crucial for achieving the government’s 6.0% lower bound growth target,” the firm said.
The Philippine economy expanded by 5.6% in 2024, falling short of the DBCC’s revised 6-6.5% full-year target.
The economy grew 5.2% in the fourth quarter, lagging the year-earlier rate of 5.5%.
Easing inflation also gives the BSP room to continue its easing cycle at its June 19 meeting, BMI said.
The Monetary Board resumed its easing cycle last week, lowering the target reverse repurchase rate by 25 basis points (bps) to 5.5%.
Rates on the overnight deposit and lending facilities were also cut to 5% and 6%, respectively.
Inflation was 1.8% in March, easing from 2.1% in February and 3.7% a year earlier. This was the lowest in 58 months or since the 1.6% reading in May 2020, at the height of the coronavirus pandemic.
For the first quarter, inflation averaged 2.2%, well within the central bank’s 2-4% target.
“This gives the BSP the flexibility for another rate cut, as noted by Governor Eli Remolona, who in a post press conference stated that ‘the more manageable inflation outlook and the risks to growth allow for a shift toward a more accommodative monetary policy stance,’” BMI said.
BMI still expects the Monetary Board to cut rates by a total of 50 bps this year, which would bring the central bank’s key rate to 5%.
“We are holding off from revising our projection, until there is more clarity on how US protectionism policies will evolve. The Trump administration has paused its planned 17% tariff on the Philippines for three months, having imposed a 10% tariff rate instead,” it added. — Aaron Michael C. Sy