THE Philippine economy "is in need of further support," a London-based research firm said, warranting more rate cuts by the Bangko Sentral ng Pilipinas (BSP).
In a report released last Friday, Capital Economics noted that gross domestic product growth had slowed to 0.5 percent quarter on quarter, from 0.9 percent in the first three months of 2024, due to declines in private consumption and exports.
"Looking forward, fiscal tightening and weak export demand should keep growth subdued," it said.
Gross domestic product (GDP) growth currently stands at the bottom end of this year's downwardly revised target of 6.0-7.0 percent.
Economic managers have been saying that the target will likely be achieved and also raised the possibility that the goals could be raised given slowing inflation and increased government spending.
The BSP, Capital Economics said, will likely order a 25-basis point (bps) rate cut this Wednesday in a repeat of an August decision that kicked off an easing cycle.
Another cut is expected in December, with more in 2025, and the central bank's policy rate will likely end next year at 4.75 percent, it added.
This "makes us more dovish than the consensus," Capital Economics said.
It also noted that inflationary pressures were weak, with headline inflation having fallen to 1.9 percent in September — below the BSP's 2.0- to 4.0-percent target.
"Our forecast is that a combination of weak economic growth and falling food price inflation will keep [overall] inflation low," the research firm said.
Japanese investment bank Nomura, meanwhile, also expects the BSP to announce a 25-bps cut this week and again in December as it pursues a data-driven approach to setting monetary policy.
"We think BSP will cite the decline in headline inflation that allows it to further reduce the restrictiveness of its monetary stance in a calibrated manner, amid soft domestic demand conditions and a negative output gap," it said in a report last week.
A 25-bps cut will bring the BSP policy rate to 6.0 percent.
"[U]nlike other regional central banks, BSP adheres more strictly to its inflation targeting framework and will be more driven by the latest data outturns on inflation," Nomura said.
The outlook for inflation, Nomura added, suggests that it will remain slightly below target in the coming months; thus, Wednesday's "policy statement and comments in the press briefing are therefore also likely to remain dovish, with BSP continuing to comment that it sees scope to deliver more rate cuts."
It added that while the Monetary Board could raise its inflation forecasts to take into account higher crude oil prices, these will likely still be considered "target-consistent."
The BSP is also expected to declare that inflation expectations are well-anchored, which will set the " stage for another 25 basis points cut, which we forecast at the last monetary board meeting of the year in December," Nomura said.
While the US Federal Reserve's easing cycle also supports further BSP easing, the Philippine central bank is not expected to copy the Fed's jumbo 50-bps cut last month.
"The substantial RRR (reserve requirement ratio) cut is already providing additional easing, and [BSP] Governor [Eli] Remolona said he prefers 25bp increments in the policy rate," Nomura said.
The central bank last month announced a 250-bps cut in the RRR for universal and commercial banks and non-bank financial institutions with quasi-banking functions; 200 bps for digital banks; and 100 bps for thrift banks, rural banks and cooperative banks.
The new ratios will take effect on October 25.
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