Policy Rate Reduction Anticipated

The Philippine central bank is expected to reduce its key policy rate by 25 basis points on December 19th, marking the third consecutive cut. This move is driven by controlled inflation and a weakening economy, as indicated by a recent Reuters poll.

Inflation Within Target Range

Despite a slight increase in inflation, reaching 2.5% in November, it has consistently remained within the Bangko Sentral ng Pilipinas' (BSP) target range of 2% to 4% since August. This stability, combined with slowing economic growth, has led BSP Governor Eli Remolona to confirm that the bank is "still in the easing cycle."

Projections for Additional Cuts

All 24 economists surveyed by Reuters predict a 25 basis point cut to the overnight borrowing rate, bringing it to 5.75%. A majority also forecasts additional cuts of the same magnitude over the next three quarters, potentially reducing the rate to 5.00% by the end of September 2025.

Economic and Regional Considerations

Economists cite lower domestic energy and rice prices as factors contributing to potential disinflation. The BSP, with one of the highest policy rates in the region at 6.00%, is expected to align its monetary policy with the U.S. Federal Reserve, which is also anticipated to cut rates by 25 basis points. Meanwhile, regional peers such as Bank Indonesia and Bank of Thailand are expected to maintain their current interest rates.

Future Outlook and Potential Constraints

Looking ahead, the BSP's monetary policy is likely to follow a similar easing trend in 2025. However, the extent of these cuts could be influenced by any hawkish adjustments to the Fed's terminal rate. Economists remain divided on the exact terminal rate, with forecasts ranging from 4.50% to 5.25% by the end of next year.