BSP easing cycle seen extending until 2026

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) might have to extend its easing cycle up to 2026 to match the slower pace of rate cuts in the United States, Singapore-based DBS Bank said.

In a commentary, DBS nevertheless said the BSP will likely stay “on a dovish path” to support economic growth even as the US Federal Reserve had hinted at fewer rate reductions for this year.

“Governor Remolona also signaled that despite a less dovish US Fed, the BSP will stay on the same trajectory as before and continue to ease in 2025,” the Bank said,

“We expect 50 bps (basis points) cuts this year and 50 bps next year, mirroring Fed’s moves,” it added.

READ: PH posted lower dollar surplus in 2024, says BSP

The BSP capped 2024 with a third consecutive quarter-point reduction to the policy interest rate, with Governor Eli Remolona Jr. keeping his intention to take “baby steps” when it comes to easing.

That put the key rate that banks typically use as a guide when pricing loans to 5.75 percent. By lowering borrowing costs, the BSP wanted to spur consumption—a major growth driver—and investments.

The Philippine central bank stayed on easing mode even while its neighbors in the region held rates steady in the face of a hawkish Fed, which signaled a much slower trajectory of monetary policy loosening in 2025 because of stubbornly high inflation stateside.

What convinced the BSP to deliver another cut back in December was a target-consistent inflation print and economic growth that had significantly slowed in the third quarter of 2024.

For now, Remolona said current monetary policy settings remained “somewhat on the tight side”, something that would give the economy “insurance” against surprise price shocks.

The BSP chief also said the central bank may ease again at its first policy meeting in 2025.

Growth momentum is expected to get a hand from easing inflation into 2025, which will provide relief to household purchasing power and a cut in rice tariffs which lowers the staple’s prices,” DBS said.

“Lower borrowing costs will also be a positive for private sector’s financing needs, including working capital requirements,” it added.