Central Bank resumes monetary policy easing cycle in April

Bank delivers a small cut as expected: At its meeting on 10 April, the Central Bank decided to reduce its reverse repurchase rate (RRP) by 25 basis points to 5.50%, in line with Governor Eli Remolona’s previous guidance and market expectations. The decision restarted the Bank’s monetary policy loosening cycle that had commenced in August 2024.

Low inflation and weaker GDP growth outlook pave way for cut: The Central Bank's decision to lower interest rates was driven by easing inflation, which came in below the Central Bank’s 2.0–4.0% target range in March. While higher transport, meat and utility prices pose an upside risk for inflation and therefore for monetary policy too, lower tariffs on rice imports and weaker global demand pose downside risks, supporting further rate cuts. The Bank also decided to cut rates on the back of heightened geopolitical and trade uncertainty, which threatens to slow GDP growth.

Bank to cut rates further this year: In its communiqué, the Central Bank said that it would shift towards a more accommodative monetary policy stance in light of within-target inflation and emerging external risks to the economy, hinting at a gradual easing cycle ahead. Our panelists see rates being cut further by the end of the year to support consumer confidence and economic growth in the wake of U.S. tariffs. Lower-than-expected GDP growth is a downward risk for interest rates, while a weaker-than-expected peso is an upside risk. The next monetary policy meeting is scheduled for 19 June.

Panelist insight: Goldman Sachs’ Jonathan Sequeira and Rina Jio commented on the outlook: “We continue to expect BSP to cut policy rates another 50bp to 5.0% this year. However, risks to our forecasts are skewed in a dovish direction given downside risks to growth from higher tariffs, still high global trade policy uncertainty and weaker growth in key trade partners.” Julia Goh and Loke Siew Ting of the United Overseas Bank held a more dovish view: “We revise our RRP rate forecasts to three additional 25bps cuts towards year-end after considering the latest forward guidance, increased expectations for more Fed rate cuts post the 2 Apr reciprocal tariff announcement, as well as prolonged uncertainties surrounding the global trade war despite US President Trump putting a 90-day pause on higher tariffs and taxing at the 10% baseline rate for all nations, except for China. With the latest developments, we now project the RRP rate to reach 4.75% by end-2025.”

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