SLUGGISH growth and slowing inflation could prompt the Bangko Sentral ng Pilipinas (BSP) benchmark rates to slip to 5.0 percent by next year, an analyst said.

"We do expect the BSP to embark on a modest easing cycle to lower the policy rate to a balanced 5 percent by 2025," Metrobank chief economist Nicholas Antonio Mapa said in a commentary.

"Given the BSPs forecasts pointing to inflation remaining within target all the way through to 2026, we believe that BSP has the price stability objective in hand for the moment," he added.

The BSP policymaking body Monetary Board on Thursday slashed key rates by 25 basis points, bringing the current rates to 6.0 percent, ending the 17-year high of 6.5 percent.

Mapa argued that this move indicates that current rates are not at "normal" levels and that maintaining a restrictive stance for an extended period could hinder economic growth.

"Tight policy rates may have been imperative when inflation was well above the target, but with inflation on the downtrend, it appeared that tight policy was no longer the right prescription for a growing economy," Mapa said.

BSP Governor Eli Remolona Jr. noted that headline inflation is expected to decrease to within the government's target range despite the rise in July, supporting a gradual shift to a less restrictive monetary policy stance.

Consumer price growth rose to 4.4 percent last month, higher than the 3.7 percent recorded in June.

The BSP revised its risk-adjusted forecast for 2024 to 3.3 percent from 3.1 percent, and that for 2025 was cut to 2.9 percent from 3.1 percent. It, meanwhile, expects inflation to rise to 3.3 percent in 2026.

The baseline forecast for this year was also adjusted to 3.4 percent from 3.3 percent, while that for 2025 was trimmed to 3.1 percent from 3.2 percent. For 2026, the BSP expects inflation to settle at 3.2 percent.

Mapa argued that, unless there are unexpected supply side shocks, the central bank has room to gently boost the Philippine investment sector, which has been growing slowly.

With recent gross domestic product (GDP) growth reaching 6.3 percent and central bank forecasts predicting growth will stay below 6.0 percent this year and next, Mapa said the BSP could gradually transition from slowing down to promoting faster growth.

"If inflation remains well-behaved, the Fed (US Federal Reserve) proceeds with three rate cuts and growth remains constrained, we could see BSP cutting rates another 50 bps before the end of the year," Mapa said.

"For now, we are holding on to our "2+1" rate cut call (two cuts with a possibility of a third cut) for 2024 with up to 75 bps worth of easing slated for early 2025," he added. "The main argument for rates to slip to 5 percent by mid-2025 lies in the outlook for growth and inflation."