Citi expects the Bangko Sentral ng Pilipinas to deliver a 25-basis-point policy rate cut next week, supported by slower inflation outlook.
Citi economist Nalin Chutchotitham said the timing of subsequent rate cuts remains data dependent, although the bank maintains its calls for June and August, as the monetary policy stance remains tight.
“We revise up inflation forecasts for 2025 and 2026 by 0.1pp to 3.2 percent and 3.3 percent, respectively, to reflect January 2025 print, but judges that the broad trend appears unchanged,” Chutchotitham said.
Citi believes the BSP is set for a 25bp policy rate cut at the Feb. 14 Monetary Board meeting, bringing it to 5.50 percent.
It said the January inflation was well-within the policy target band, while the 2024 GDP growth turned out weaker than expected at 5.6 percent.
Citi said BSP Governor Eli Remolona’s comments that the economy is “growing a bit below capacity” was in line with the BSP’s Q4 2024 Monetary Policy Report which assessed that the output gap would remain negative in 2025 and close by 2026.
“We continue to see that the real policy rate still appears fairly tight by historical standard, even if considering the BSP’s own risk-adjusted inflation forecasts at 3.4 percent in 2025 and 3.7 percent in 2026 as at the December 2024 meeting,” Citi said.
Citi continues to expect the next 25bp of rate cuts in June 2025 and August 2025, although the second half rate cut may still be dependent on several outcomes later this year, including, the global economic momentum, the Fed’s monetary easing.
Aside from the general elections in May, Citi thinks the BSP could pause in April to reassess overall inflation risks, which may come from the expected rise of water and electricity rates during the year, and the programmed tax increases of alcohol (6.0 percent) and tobacco (5.0 percent) from the Universal Healthcare Act, according to the BSP’s Q4 2024 Monetary Policy Report.
It said the Monetary Board also highlighted some concerns over the potential effect of an average of 8.1 percent increase in minimum wages across 16 of 17 regions (5.7 percent for Manila) approved since the first half of 2024.
Citi said Remolona’s pronouncement that given persisting inflation, a 25 bp cut in first half and another 25 bp cut in second half “sounds about right”, which leaves the uncertainty over the June rate cut.
Remolona also mentioned that the Monetary Board is considering 200bp cut in the reserve requirement ratio (RRR) in June or July from the current 7 percent for large banks, which Citi said could help the economy through more lending, suggesting some concerns over growth.
