Below-target inflation supports case for another rate cut, analysts say

THE BANGKO SENTRAL ng Pilipinas (BSP) will be able to further reduce interest rates amid below-target inflation and weak economic growth, analysts said.

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"With inflation holding near multi-year lows and the peso showing relative strength, a rate cut from the BSP in June has become more certain," Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said.

This after inflation cooled to an over five-year low of 1.3% in May, bringing the five-month average to 1.9%. This is below the BSP's 2-4% target band.

Inflation is also seen to remain well contained for the remainder of the year, analysts said.

Nomura Global Markets Research analysts Euben Paracuelles and Nabila Amani said headline inflation could average 1.8% this 2025.

"Our forecast pencils in CPI (consumer price index) inflation becoming more benign at 1.3% in the third quarter, down from 2% year-to-date, before edging back up to 2% by yearend," they said in a report.

The central bank expects inflation to average 2.3% this year.

"This benign inflation outlook is underpinned by various factors, such as a negative output gap, low crude oil prices and the government maintaining supply-side measures (to keep rice prices low, in particular)," Nomura added.

Weaker-than-expected first-quarter gross domestic product (GDP) growth would also justify further easing, Mr. Neri said.

Consumption growth has not yet returned to pre-pandemic levels, which has kept overall GDP below 6%.