Philippine central bank on track for two more rate cuts in 2025

The Philippine central bank maintains an easing bias, planning two rate cuts this year contingent on weaker economic growth and sustained low inflation, following its June 25 basis point rate cut to 5.25%. Governor Remolona highlighted current inflation at 1.4% and robust domestic fundamentals, while acknowledging external risks from Middle East tensions and trade uncertainty, noting the diminishing influence of the U.S. Federal Reserve on BSP policy.

Analysis

The Bangko Sentral ng Pilipinas (BSP) is maintaining a clear and dovish monetary policy stance, with Governor Eli Remolona signaling a commitment to two rate cuts in the current year. This follows a 25 basis point reduction in June which brought the key rate to a two-and-a-half-year low of 5.25%. The primary justification for this easing cycle is persistently low inflation, which registered at 1.4% in June and has remained below 2% since March. The central bank has explicitly stated that weaker-than-expected growth data, combined with continued low inflation, would serve as the main trigger for the next rate cut, possibly at the August 28 meeting. While the governor anticipates second-quarter growth to exceed the first quarter's 5.4%, the outlook is tempered by external risks, including new 19% U.S. import tariffs and geopolitical tensions in the Middle East. Notably, the BSP is asserting greater policy independence, with the governor indicating that the U.S. Federal Reserve's actions now carry significantly less weight, a stance supported by strong domestic fundamentals like ample reserves and stable remittances.

Key Decisions for Investors

• Given the BSP's explicit commitment to further rate cuts driven by low inflation, investors may find opportunities in Philippine fixed-income assets, as yields are likely to compress further.
• The dovish monetary policy creates a supportive environment for Philippine equities, but exposure should be managed with attention to key external risks, particularly U.S. trade policy and geopolitical developments impacting oil prices.
• Closely monitor upcoming Philippine Q2 GDP and inflation data, as these have been identified as the direct triggers for the timing of the next policy rate reduction.