BSP likely to ease policy on June 19 — economists, analysts

Economists and financial analysts expect the Bangko Sentral ng Pilipinas (BSP) to ease its policy rate by 25 basis points to 5.25 percent on Thursday.

HSBC economist for Southeast Asia Aris Dacanay said the better-than-expected inflation last month should encourage the BSP to relax its policy soon in driving faster economic growth.

Previously, he projected the BSP to ease its policy rate in the third quarter of the year.

"Given how retail rice prices haven't plunged as low as global rice prices did, there is still room for food and overall inflation to remain subdued throughout the rest of 2025," Dacanay said.

The Philippine Statistics Authority reported inflation last month slowed further to 1.3 percent from 2.9 percent in January, falling below the BSP's default minimum target of 2 percent.

Thus, the average inflation in the first five months stood low at 1.9 percent.

However, despite the lower prices of goods and services, overall economic growth in the first quarter of this year was broadly stable at 5.4 percent from 5.3 percent in the fourth quarter of 2024.

However, it was lower than the 5.9 percent in the first quarter of last year.

"The growth in the first quarter of 2025, too, surprised to the downside despite household consumption finally picking up speed," Dacanay said.

"We think this slowdown adds pressure on the BSP to hasten its easing cycle. This is because a policy rate cut can help shore up the country's services exports (or exports in general) by improving the peso's competitiveness vis-à-vis other currencies," he added.

Dacanay said the business process outsourcing industry grew slower by 1.7 percent year-on-year, much worse than the 7.5 percent average growth recorded in a 10-year period.

An analysis from Chinabank also said that a lower BSP rate should help businesses scale up production to accommodate sustained strong household demand for goods and services.

"External factors, such as higher US tariffs, policy uncertainties, and a potential global economic slowdown, continue to pose downside risks to economic growth," the bank's analysts said.

"Lower borrowing costs could help boost investments in capital equipment and encourage business expansion amidst the highly uncertain global environment," Chinabank's policy call added.

Given the low inflation and strong peso against the US dollar,  Chinabank said

Moreover, the bank's analyst said the country should be able to sustain decent levels of foreign direct investments and foreign exchange rates as the gap between the policy rates of the BSP and the United States' Federal Reserve (Fed) narrows.

"Despite trading higher in recent days, the USD-PHP rate has remained well below its historical highs, giving the BSP room to continue cutting interest rates, even as the Fed is expected to stand pat next week," Chinabank said.

"Moreover, benign US inflation reports have bolstered bets of two 25-basis point interest rate cuts from the Fed this year, with the initial cut likely in September," the banks' analysts added.

Chinabank forecast overall inflation to hit 1.8 percent this year and 3 percent in 2026.

While analysts expect the BSP to continue its easing cycle in the second half of the year, Chinabank said the BSP must "remain vigilant of persisting upside risks."

Chinabank said there are risks of higher rice prices as some lawmakers in the House of Representatives suggest raising back tariffs on imported rice to 35 percent from 15 percent.

The banks' analysts added that global oil prices might increase if geopolitical tensions between Iran and Israel escalate.