The Bank of the Philippine Islands (BPI) expects the Bangko Sentral ng Pilipinas (BSP) to ease its policy rate by a total of 50 basis points (bps) to 5.25 percent this year as central banks navigate Trump’s trade protectionist policies.

This is the BPI’s forecast as of yesterday or a few days ahead of the inauguration of re-elected US president Donald Trump on 20 January.

“Rate cuts in the first half of the year appear feasible, but the latter half may bring challenges as the Federal Reserve could shift its policy stance in response to President Trump’s policies,” BPI chief economist Jun Neri said.

Trump has promised to impose a 10 percent tariff on all exports to the US, cut corporate income tax on American firms to 15 percent from 21 percent, and prioritize hiring of Americans in companies over immigrant workers.

Adverse scenario

“In an adverse scenario, higher tariffs and mass deportations may re-ignite inflation in the US, which could force the Federal Reserve and other central banks to pivot to monetary tightening,” Neri said.

Tariff payments as part of businesses’ operating costs are often passed to consumers, and anti-immigrant policies raise labor costs which businesses also include in their consumer prices.

Due to these policies’ inflationary effects on other countries, Neri said the BSP might limit its policy rate cuts, matching the moves of the Federal Reserve in the US to control Philippine inflation and maintain healthy levels of foreign exchange and investments.

Neri shared that the Federal Reserve recently projected a total of 50 bps this year as its officials wait for clearer announcements from Trump and new economic data.

Current rate ‘restrictive’

BSP Governor Eli Remolona Jr. said the current 5.75 percent policy rate remains “restrictive,” following generally stable growth in loans from universal and commercial banks.

Consumer loans to Philippine residents slowed by 23.3 percent last November from 24 percent year-on-year after the BSP cut its rate by a total of 50 bps in August and October.

Meanwhile, overall inflation consistently rose to 2.9 percent in December from 1.9 percent in September partly due to typhoons.

Neri said the BSP will likely exercise some restraint in cutting its policy rate to prevent overall inflation from spiking due to high demand for goods.

“Upside risks to this outlook include the possibility of La Niña and disruptions to global supply chains due to trade barriers. Inflation remains sensitive to adverse weather conditions, particularly for vegetable prices, which warrant close attention,” he said.