Central Bank cuts rates further in June

Monetary loosening cycle continues: At its meeting on 19 June, the Central Bank (BSP) reduced the target reverse repurchase (RRP) rate by 25 basis points to 5.25%, mirroring April’s same-sized cut and matching market expectations.

Economic concerns take precedence over currency weakness: June’s cut primarily aimed to support the economy: The BSP noted that a slowing global economy will likely curtail GDP growth in the Philippines, too. Moreover, the Bank cut its inflation forecast for 2025 from 2.4% to 1.6% on muted global economic activity and higher oil production abroad. The BSP remained unphased by the peso’s recent depreciation—the sharpest in Asia in the month prior to the Bank’s decision—which it attributed to global risk aversion rather than weak fundamentals.

Rate cuts to continue this year: The Central Bank indicated that it would shift toward safeguarding economic growth, stating that it will ensure that monetary policy “is conducive to sustainable economic growth and employment”. Most panelists see between 25 and 75 basis points of further rate reductions by the end of 2025 as the BSP continues to support economic momentum. The Bank will reconvene on 28 August.

Panelist insight: EIU analysts said: “Although the BSP noted the risk to inflation from geopolitical tensions, it still saw the need for more accommodative policy. That aligns with our view that the inflationary impact of the Middle East conflict will be relatively mild in Asia, and that it should not distract central banks from loosening to cushion the larger headwind—the US-induced trade shock. Real rates—the cost of borrowing adjusted for inflation—are at multi-year highs in the Philippines. That is not a good position from which to be facing a demand shock. We expect the BSP to continue cutting rates at each of its remaining meetings this year in August, October and December.”

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