THE Bangko Sentral ng Pilipinas (BSP) has “greater motivation” to reduce borrowing costs further, analysts said, with expectations of up to 50 basis points (bps) worth of rate cuts this year.

“As we look at our gross domestic product (GDP) figures and inflation rates, we can see that there’s more of a greater motivation for the central bank to actually cut rates now,” Regina Capital Development Corp. Equity Analyst Alexandra G. Yatco said on Money Talks with Cathy Yang on One News.

In a report, Bank of America (BofA) Global Research said it expects a total of 50 bps worth of easing this year.

“We currently see one 25-bp cut in the second quarter and then one more in the fourth quarter, bringing the overnight borrowing rate to 5.25% by end-2025,” it said.

“Central banks across ASEAN (Association of Southeast Asian Nations) have adopted a wait-and-watch approach, looking for periodic opportunities to ease monetary conditions to mitigate growing uncertainty, emanating from US trade policy, a steady yet slow China, and falling inflation.”

Despite keeping the benchmark rate steady at 5.75% last month amid “global trade uncertainties,” BSP Governor Eli M. Remolona, Jr. said they are still on an easing mode.

He signaled that a rate cut is still on the table at the Monetary Board’s next rate-setting meeting on April 10.

“With capital outflows dominating capital markets, central banks have stepped up to inject liquidity both to domestic money markets and foreign exchange markets, while tactically cutting policy rates as and when they can,” BofA said.

“We expect this behavior to continue for some time, especially since real rates remain high, growth is uninspiring, and currencies are under pressure.”

BofA said central banks in the region will look to cut rates given the opportunity, as long as this does not disrupt domestic and external stability parameters

“Despite the meandering path central banks have chosen to take, the macro backdrop and our baseline forecasts still point towards broadly stable growth rates, low inflation, and stable fiscal positions,” it added.

BofA expects Philippine inflation to remain within the central bank’s 2-4% target band. So far, headline inflation has averaged 2.5% in the first two months.

“Most importantly, real rates remain high across all economies, giving space to cut rates and ease monetary conditions if needed,” it added.

Meanwhile, BofA said ASEAN banks are expected to “slowly diverge from the Fed.”

“As such, with significant uncertainty, we expect ASEAN central banks to keep balancing between global factors such as US policy rates and the (US dollar index), and domestic growth and inflation backdrop.”

This could make the path of monetary policy “more erratic and uncertain, resulting in increased policy divergence between the Fed and the ASEAN economies, contrary to previous business cycles.”

TARIFF CONCERNS
Meanwhile, BofA also flagged the potential impacts from retaliatory tariffs on the Philippines.

“The concerns around tariffs seem to be affecting the growth side more than the inflation front. As the export demand falls or global trade slows, ASEAN economies could be at a greater risk of a growth slowdown than the risk of an immediate inflationary spiral.”

“Thus, economies such as Philippines and Thailand where domestic demand has remained sub-par could face further headwinds on the external front requiring a more initiative-taking policy,” it added.

Reuters reported President Donald J. Trump’s increased tariffs on all US steel and aluminum imports took effect on Wednesday, stepping up a campaign to reorder global trade in favor of the US and drawing swift retaliation from Europe.  (Related story “Global trade war looms as Trump’s metal tariffs kick in”).

“For the Philippines, the benefit of being a domestic-oriented economy and having a less binding relationship with the US provides it some respite, but tariffs on Philippine exports to the US, especially if aimed at electronics, could diminish its surplus with the US and worsen its overall trade deficit.”

The Philippines’ trade-in-goods deficit widened to $5.09 billion in January, the widest deficit in three months. — Luisa Maria Jacinta C. Jocson