By Luisa Maria Jacinta C. Jocson, Reporter

THE BANGKO SENTRAL ng Pilipinas (BSP) is expected to cut rates for a fourth straight meeting on Thursday, analysts said, amid within-target inflation and weaker-than-expected gross domestic product (GDP).   

A BusinessWorld poll conducted last week showed that 19 out of 20 analysts expect the Monetary Board to reduce the target reverse repurchase rate by 25 basis points (bps) at its policy review on Feb. 13.

If realized, this would bring the benchmark rate to 5.5% from the current 5.75%.

This would also mark the fourth straight meeting the BSP cut rates since it began its easing cycle in August.

In 2024, the central bank slashed borrowing costs by a total of 75 bps.

On the other hand, one analyst expects the central bank to keep interest rates steady at the meeting.

“We are expecting the BSP to cut the policy rate by 25 bps to 5.5% at its Monetary Board meeting,” Security Bank Corp. Vice-President and Research Division Head Angelo B. Taningco said.

Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said monetary policy normalization is “far from over” amid elevated interest rates.

“I’m expecting the Monetary Board to cut further this week, by another 25 bps, especially with fourth-quarter GDP coming in softer than expectations and with inflation remaining firmly within the BSP’s target range,” he said.

Citi Economist for the Philippines Nalin Chutchotitham said the BSP is likely to deliver a 25-bp cut on Thursday after weaker-than-expected 2024 growth and a moderate inflation outlook.

BSP Governor Eli M. Remolona, Jr. earlier said a rate cut is still “on the table” for this week.

“The central bank might use the slower-than-expected growth last quarter as the primary justification for the cut, along with a stable inflation environment that allows the central bank to focus more on boosting the economy,” Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said.

Chinabank Research said price pressures have remained “generally mild and manageable.”

“Headline inflation staying stable at 2.9% in January, and core inflation even easing slightly, will be a key input to the Monetary Board,” Nomura Global Markets Research analyst Euben Paracuelles said.

Headline inflation remained steady at 2.9% in January, within the central bank’s 2-4% target band.

HSBC economist for ASEAN Aris D. Dacanay said inflation is “not so much of a concern” as the latest consumer price index outturn was well-within target.

WEAK GROWTH
Meanwhile, analysts noted that the latest economic output data could prompt further policy easing.

“Having attained its inflation objective in 2024 alongside a target-consistent inflation outlook this year, the BSP has room to trim its policy rate following another disappointing GDP growth estimate,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said.

Patrick M. Ella, economist at Sun Life Investment Management and Trust Corp. said that weak GDP is a “more pressing issue” for now so the BSP “needs to support growth from the monetary side.”

“The country’s subdued economic performance for both the fourth quarter and full-year 2024 likewise supports the case for less restrictive monetary policy to help meet the government’s 6-8% target for this year,” Chinabank said.

The Philippines’ GDP grew by a slower-than-anticipated 5.2% in the fourth quarter. This brought full-year 2024 growth to 5.6%, short of the government’s 6-6.5% target.

“Softer GDP data for the second straight quarter and the slowest in 1.5 years or since the second quarter of 2023 would further support local policy rate cuts,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

The BSP chief earlier said the country is growing at a “little bit below capacity.” If the output gap widens further, this would call for more easing, Mr. Remolona added.

“The BSP’s sustained rate action contributes to lower costs of funding and doing business while sowing the seeds for investment-driven growth that can help create jobs and incomes,” Mr. Asuncion said.

Mr. Dacanay said loosening monetary policy will “help raise demand for credit and support growth.”

“This is an important market signal to boost business activity and spending after the disappointing GDP growth report for the last quarter of 2024,” Oikonomia Advisory & Research, Inc. economist Reinielle Matt Erece said.

PESO
Meanwhile, the peso’s recent appreciation could also allow the BSP to continue on its easing cycle.

“The recent stability of the peso could also provide the BSP with more room to consider a rate cut,” Mr. Neri said.

“The currency has strengthened in recent trading sessions following the US government’s decision to postpone its tariffs against Canada and Mexico. While a rate cut could exert pressure on the peso, improving market sentiment may mitigate this.”

The peso closed at P58.03 per dollar on Friday, strengthening by 15 centavos from its P58.18 finish on Thursday. This was its strongest close in more than a month or since its P57.91-per-dollar finish on Jan. 2.

Week on week, the peso likewise rose by 33.5 centavos from its P58.365 finish on Jan. 31.

“Moreover, the BSP might be open also to a higher exchange rate as long as inflation remains within target. A weaker peso could also benefit the economy by boosting the purchasing power of exporters and OFW households,” Mr. Neri added.

Meanwhile, Mr. Dacanay said there is also room for the BSP to narrow its interest rate differential with the US Federal Reserve.

“Currently at 125 bps, history has shown us that the spread between the BSP and the upper-end range of the Fed rate can be as narrow as 100 bps before stoking financial jitters,” he said.

Reuters reported Federal Reserve officials on Friday said the US job market is solid and noted the lack of clarity over how President Donald J. Trump’s policies will affect economic growth and still-elevated inflation, underscoring their no-rush approach to interest rate cuts.

The Fed kept its policy rate steady last month, citing economic uncertainties.

“We think the BSP could still proceed with a 25-bp cut as the resulting interest rate differential, at 100 bps, remains at a comfortable level and would likely not risk a significant depreciation of the peso against the US dollar,” Chinabank Research added.

On the other hand, Moody’s Analytics economist Sarah Tan said the BSP could keep rates on hold on Thursday, noting it seems “too soon” to cut rates amid trade war jitters.

“The BSP will be prudent in monitoring global developments that could reinflate inflation and weaken the strength of the peso,” she added.

CAUTIOUS EASING
Moving forward, analysts said the central bank will likely remain cautious and could deliver fewer than expected rate cuts this year.

“The BSP will likely maintain its cautious messaging, given persisting inflation risks and increased global uncertainties,” Chinabank Research said.

The central bank earlier warned that the risks to the inflation outlook remain tilted to the upside for this year and 2026.

“Across 2025, we expect monetary policy easing to continue but at a more moderate pace,” Ms. Tan said.

Mr. Remolona had signaled the possibility of cutting by a total of 50 bps this year, saying that 75 bps or 100 bps may be a bit “too much.”

“Although a rate cut remains on the table, we believe the extent of easing this year will be limited,” Mr. Neri said.

“The sizable current account deficit of the economy makes it more vulnerable to external shocks such as global trade tensions. A narrower interest rate differential could also drive portfolio outflows as investors seek higher returns elsewhere,” he added.

Mr. Neri expects a total of 50 bps worth of rate reductions this year.

“Front-loading Mr. Remolona’s preference for a 50-bp rate cut this year with the Fed on hold would be macro-appropriate although this would be at the price of a weaker peso,” Mr. Asuncion said.

On the other hand, Mr. Ella expects the central bank to deliver two rate cuts totaling 50 bps in the first half, keep rates steady in the third quarter before delivering another 25-bp cut in the fourth quarter.

THE PHILIPPINES’ dollar reserves dipped in January, according to preliminary data by the Bangko Sentral ng Pilipinas (BSP).

Data from the central bank showed gross international reserves (GIR) declined by 3% to $103.02 billion at the end of January from $106.26 billion at the end of December 2024.

Year on year, dollar reserves inched down by 0.2% from $103.27 billion.

“The month-on-month decrease in the GIR level reflected mainly the BSP’s net foreign exchange operations, and drawdown on the National Government’s (NG) deposits with the BSP to pay off its foreign currency debt obligations,” the BSP said.

As of end-January, the level of dollar reserves was enough to cover about 3.6 times the country’s short-term external debt based on residual maturity.

It was also equivalent to 7.3 months’ worth of imports of goods and payments of services and primary income.

“By convention, GIR is viewed to be adequate if it can finance at least three-months’ worth of the country’s imports of goods and payments of services and primary income,” the BSP said.

Ample foreign exchange buffers protect an economy from market volatility and ensure the country can pay its debts in the event of an economic downturn.

BSP data showed foreign currency deposits plunged by 46.3% to $733.5 million from $1.37 billion a month ago. It also fell by 36.9% from $1.16 billion in January last year.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the lower foreign exchange holdings was due to the peso volatility in the past months.

The peso closed at P58.365 versus the greenback at end-January, depreciating by 52 centavos from P57.845 at end-December.

“GIR as of end-January declined for the fourth straight month after some net payment of the National Government’s foreign debt maturities and other obligations denominated in US dollars or other foreign currencies,” Mr. Ricafort added.

Meanwhile, the central bank’s foreign investments dropped by 3.7% to $86.13 billion as of January from $89.48 billion in the previous month. Year on year, investments inched lower by 1.3% from $87.28 billion.

Net international reserves went down by 3% to $103 billion as of end-January from $106.2 billion as of end-December 2024.

Net international reserves are the difference between the BSP’s reserve assets or GIR and reserve liabilities, such as short-term foreign debt and credit and loans from the International Monetary Fund (IMF).

The country’s reserve position in the IMF declined to $671.3 million at end-January from $675.6 million in the prior month and from $753.9 million a year ago.

Special drawing rights — the amount the country can tap from the IMF — was unchanged at $3.73 billion for the second straight month.

On the other hand, reserves in the form of gold were valued at $11.75 billion. This was up by 6.8% from $11 billion as of end-December, and higher by 14% from $10.3 billion a year earlier.

For the coming months, Mr. Ricafort said dollar reserves could be supported by growth in overseas Filipino worker remittance, business process outsourcing revenues, exports and tourism revenues.

The government’s global bond offer in January could also be reflected in the February GIR level, he said.

In January, the NG raised $3.3 billion from its triple-tranche offering of US dollar and euro bonds. This was its first global bond issuance for the year.

The central bank expects the country’s GIR to hit $110 billion by end-2025. — Luisa Maria Jacinta C. Jocson

THE ASIAN Development Bank (ADB) is eyeing to approve loans related to the Philippine government’s transport, infrastructure and social sector projects as part of its lending program this year.

“I think there will be more programs further down. We continue to support the ‘Build Better More’ agenda of the government,” ADB Country Director for the Philippines Pavit Ramachandran told reporters on the sidelines of an event last week.

“These are continuing projects which we want to make sure are seen to completion and fruition,” he added.

Mr. Ramachandran said one of the loans lined up this year is another package for the North-South Commuter Railway.

“The North-South Commuter Railway is an important investment, something we are committed to support. That will be one of the projects. It’s an ongoing investment but the next tranche of investment has to be approved,” he said.

The North-South Commuter Railway is among the Marcos administration’s 16 flagship infrastructure projects.

The 147-kilometer railway will connect Clark Airport to Calamba, Laguna. The government is targeting its partial operation by the end of 2028. The project has a total funding of around P873 billion and is co-financed by ADB and the Japan International Cooperation Agency (JICA). 

Mr. Ramachandran said the next tranche of financing for the railway would be a “sizable loan.”

“It will be upwards of a billion (dollars) because it’s the Malolos-Clark component of it. These are all contracted sections but it’s about making sure the financing is done.”

Meanwhile, the ADB is also aiming to provide funding for social development projects.

“We are also looking at some social sector projects including support for the food voucher program,” Mr. Ramachandran said.

The amount is yet to be finalized, but the financing for the food voucher program will likely range from $300 million to $400 million, he added.

In 2023, the Department of Social Welfare and Development (DSWD) launched the pilot of the food stamp program. Under the program, beneficiaries receive electronic transfer cards that are loaded with food credits. The DSWD scaled up the implementation of the program last year.

The multilateral lender also has investments planned for the health sector and infrastructure, Mr. Ramachandran added.

Meanwhile, Mr. Ramachandran said they are still finalizing the full lending program for 2025.

“We haven’t locked in the details of the lending program because we haven’t done what we call our programming mission,” he said.

“That will happen perhaps towards the end of March-April where we’ll sit down with the government and other stakeholders and discuss the details of individual projects, the total. At this stage, we don’t have the full scope of that fully laid out yet.”

The ADB earlier said it is allocating $24 billion in lending to the Philippines for 2024 to 2029. — Luisa Maria Jacinta C. Jocson