Central Bank unexpectedly leaves rates unchanged in February

Bank suspends easing cycle after three consecutive cuts: At its meeting on 13 February, Bangko Sentral Pilipinas (BSP) decided to maintain the Target Reverse Repurchase Rate at 5.75%. The move followed three consecutive cuts last year and caught markets by surprise: A 25-basis-point cut had been priced in amid below-target GDP growth.

Pause to shield economy from external risks: The BSP chose to stand pat amid mounting uncertainty about the outlook for both inflation and the economy. The authority likely also aimed to shield the peso from depreciatory pressures stemming from fears over global trade protectionism this year. That said, Governor Eli Remolona stated that the pause was temporary and that the Bank would continue to loosen monetary conditions, including through a planned cut to reserve requirement ratios in the first half of this year. Meanwhile, the BSP noted that both its inflation forecasts for 2025–2026 and domestic economic growth remain firm.

Rate cuts to resume in Q2: In its communique, the BSP stated that it “anticipates continuing its measured shift to less restrictive monetary policy settings”. Additionally, Governor Remolona stuck to the previous guidance of 50 basis points of rate cuts this year. The Bank is set to reconvene on 3 April. Our Consensus is for the BSP to deliver about 75 basis points of rate reductions this year, with the majority of our panelists expecting them to resume in Q2. The U.S. Fed’s policy stance is a bi-directional risk, while unanticipated weakness in the Philippine peso poses an upside risk.

Panelist insight: Nomura analysts Euben Paracuelles and Nabila Amani commented: “We still forecast an additional 75bp of policy rate cuts in this cycle, taking the RRP rate to 5.00% […]. However, we think February’s decision signals BSP is looking to slow the pace of the easing cycle (after three consecutive cuts), based on the governor’s definition of “measured” and absent a strong rationale for the on-hold decision. As such, we now expect BSP to cut on 3 April, 28 August and 11 December (i.e., a 25bp cut every other monetary board meeting instead of 25bp cuts at each of the next three meetings).” EIU analysts said: “We expect the BSP to continue to ease its monetary policy over the coming months. This will be enabled by soft inflation, which is comfortably within the central bank's 2-4% target range (and likely to remain so), and continued monetary easing by the Federal Reserve (the US central bank). The pace of easing will slow in 2025. A strong US dollar will put pressure on the Philippine peso and reduce the BSP's room for manoeuvre. We expect a modest 50 basis points of cuts in the central bank's main policy rate in 2025, taking it to 5.25% (still above our estimate of its neutral rate).”

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