BSP may continue easing despite Fed’s pause

By Luisa Maria Jacinta C. Jocson, Reporter

THE BANGKO SENTRAL ng Pilipinas (BSP) could continue its easing cycle despite the US Federal Reserve’s policy pause, analysts said, but flagged the need for caution.

“Despite the Fed’s pause, we anticipate a 25-basis-point (bp) policy rate cut at the BSP’s meeting in February, narrowing the interest rate differential between the BSP and the Fed to 100 bps,” Metrobank Research said in a report.

The US central bank held rates steady overnight as widely expected, with Fed Chair Jerome H. Powell saying there would be no rush to cut them again, Reuters reported.

The Fed kept its policy rate at the 4.25%-4.5% range after slashing rates by a total of 100 bps last year.

President Donald J. Trump’s policies remain a risk for the Fed’s policy outlook. Mr. Trump gave a Feb. 1 deadline for imposing new tariffs on products from Canada and Mexico, and possibly on imports from China as well.

Metrobank said it expects the Fed to continue its easing cycle this year, though at a moderate pace, for a total of 75 bps worth of cuts for 2025.

“If the Fed did not lower interest rates, then it probably feels that there is little inflationary pressure and is comfortable about current US economic growth,” Peter Lee U, dean of the University of Asia and the Pacific’s School of Economics, said.

“Bottom line is if the US Fed maintains their interest rate, we can maintain our own interest rates unless we want to depreciate or appreciate,” he added.

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said the Fed’s latest decision and signals could prompt the BSP to remain cautious and keep rates higher for longer.

“A premature rate cut could weaken the peso and drive inflationary pressures, especially given the country’s reliance on imported goods and energy,” he said via Viber.

“If the Fed delays its easing, the BSP may hold off on rate cuts to maintain interest rate differentials and prevent capital outflows,” he added.

The BSP began its rate-cutting cycle in August last year, ahead of the Fed, and delivered a total of 75 bps worth of reductions. This brought the benchmark to 5.75% by end-2024.

BSP Governor Eli M. Remolona, Jr. has signaled further easing this year as the current policy rate is still in “restrictive territory,” but cited that rate cuts will likely be implemented in “baby steps.”

“Also, a prolonged high-rate environment in the US strengthens the US dollar, which could put depreciation pressure on the peso, raising import costs and inflation,” Mr. Rivera said.

“This can also result in capital outflows from the Philippines as investors seek safer, higher-yielding US assets.”

The Development Budget Coordination Committee expects the peso to range from P56-P58 per dollar in 2025 and P55-P58 in 2026.

The peso has been under volatility in the past months as the dollar surged on bets of slower-than-expected Fed cuts on expectations of inflationary pressures from Mr. Trump’s economic policies.

“Given the Fed’s cautious stance, expectations for rate cuts may be pushed further depending on US inflation and job market trends,” Mr. Rivera said.

“Overall, the Fed’s pause and cautious messaging reinforce the need for careful monetary policy calibration in the Philippines to manage inflation, support economic growth, and maintain peso stability.”