BAGUIO CITY — Another interest rate cut is “on the table” as the economy continues to grow below its potential, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said on Friday.
Gross domestic product (GDP) growth fell below the government’s 6.0- to 6.5-percent target last year, edging up by just 5.6 percent from 5.5 percent in 2023 as a series of typhoons battered the country in the last three months of the year.
The BSP, in its December monetary policy report that was released earlier this week, said that the output gap — the difference between actual and potential economic output — would remain negative until 2025 but could close by 2026 as economic expansion gains traction.
“Right now we have a kind of a negative output gap,” Remolona told reporters.
“We’re growing at a little bit below capacity,” he added, and a further widening “would call for more easing.”.
Asked if monetary authorities would then be cutting interest rates anew when it meets for the first time this year on Feb. 13, Remolona replied that “it’s on the table.”
The BSP’s policymaking Monetary Board reduced interest rates by a total of 75 basis points starting August last year as inflation settled within target. It is expected to order again a 25-bps cut later this month, although the pace of easing could slow given concerns over the inflationary impact of possible US protectionism and fewer Federal Reserve rate reductions.
Bank of America (BofA), in a commentary on Friday, said the underwhelming GDP results could prompt the BSP to cut twice in the first half.
“If any consolation, the weaker 4Q GDP print may encourage the Bangko Sentral ng Pilipinas to lower its policy rate within 1H25,” it said.
“We maintain that the BSP may cut its policy rate [by] 25bp at its February and April meetings, lowering the policy rate a total of 50bp to 5.25 percent within 1H25 – while the Fed remains on hold.”
Most analysts expect the central bank to continue easing to prop up the economy and despite inflation having fallen back within target.
BofA still expects GDP growth to again fall below the 6.0- to 8.0-percent target this year, averaging 5.9 percent.
“While we reduce our consumption growth expectation, its impact to GDP is mostly offset by reduced import growth expectations,” it noted.
Bank of the Philippine Islands (BPI) economist Emilio Neri also said that weaker-than-expected GDP growth had strengthened the case for a February rate cut.
“With inflation still within the target, the central bank may put more priority on growth and support the economy with more liquidity,” he said.
“However, we continue to see risks that could limit the BSP’s rate cuts to just 50 bps this year.”
Neri noted that the country’s current account deficit remained substantial, making the peso more vulnerable to external forces such as Fed policy and policies to be enacted by US President Donald Trump.
“Aggressive rate cuts from the BSP may exert pressure on the peso,” he added.
