Philippine central bank to cut rates by 25 bps on August 28, ease more later: Reuters poll

The Philippine central bank (BSP) is widely expected to cut its key interest rate by 25 basis points to 5.00% at its August 28 meeting, according to a Reuters poll. This move is driven by subdued inflation, which registered 0.9% in July, well below the BSP's target, and aims to bolster economic growth, as Q2 GDP growth of 5.5% only met the lower end of the government's target. A majority of economists anticipate at least one additional 25 basis point reduction by year-end, bringing the policy rate to 4.75%, though potential U.S. tariffs on Philippine goods and weak external demand pose risks to the export outlook.

Analysis

The Bangko Sentral ng Pilipinas (BSP) is demonstrating a clear dovish bias, with a consensus among all 26 polled economists pointing to a 25 basis point rate cut to 5.00% at its upcoming meeting. This policy action is underpinned by a compelling need to stimulate economic activity, as second-quarter GDP growth of 5.5% only met the lower boundary of the government's annual target. The central bank has significant latitude for this easing, given that July's inflation rate plummeted to 0.9%, a near six-year low and substantially below the official 2%-4% target range. The market is already looking ahead, with a strong majority of economists (82%) forecasting at least one additional 25 basis point cut by year-end, which would bring the policy rate to 4.75%. This accommodative stance is further justified by external headwinds, including weak global demand and a newly announced 19% U.S. tariff on Philippine goods, which poses a material risk to the nation's export-oriented economy.

Key Decisions for Investors

• Investors with exposure to Philippine fixed income should anticipate upward pressure on bond prices due to the expected rate cuts, making it prudent to evaluate extending duration in portfolios.
• The sustained accommodative monetary policy is likely to be a tailwind for domestic equities, particularly for rate-sensitive sectors such as real estate, banking, and consumer discretionary.
• Monitor the Philippine Peso (PHP) for potential weakness resulting from the widening interest rate differential with the U.S., and closely track trade data for any negative impact from the announced U.S. tariffs, which remains a key downside risk.