Negative output gap supports BSP easing

Germany-based Deutsche Bank said a quarter-point rate cut on Thursday would help support Philippine economic activity, following the Bangko Sentral ng Pilipinas' (BSP) revised forecast that the negative output gap will persist until 2027.

- BY DERCO ROSAL

"We see the BSP lowering its policy rate by 25 bps [basis points] on Aug. 28," Deutsche Bank Research said in an Aug. 24 commentary, after which the bank emphasized the shift in the BSP's output gap forecast.

The negative output gap refers to the difference between actual and potential gross domestic product (GDP).

Deutsche Bank Research noted that the BSP said in its June monetary policy report that "the negative output gap was now expected to close towards end-2027, instead of end-2026 as we understood from earlier in March."

"This opens the door for further easing in 2026, in line with Governor Eli M. Remolona Jr.'s comments to the media," Deutsche Bank Research economist Junjie Huang said in an Aug. 7 commentary.

To recall, the central bank's December policy report noted that forecasts from the BSP's Policy Analysis Model for the Philippines (PAMPh) showed "the output gap will remain negative until 2025 and close by 2026 following the lower-than-expected economic expansion in the third quarter of 2024" at 5.2 percent.