Nomura: BSP likely to deliver three rate cuts in early 2025

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) will likely implement a series of 25-basis-point (bp) rate cuts during its first three policy meetings in 2025, Nomura Global Markets Research said.

This would bring the target reverse repurchase (RRP) rate down to five percent by May 2025 from the current level of 5.75 percent.

In a report, Nomura economists Euben Paracuelles and Nabila Amani said the BSP’s next decisions will largely be driven by the inflation outlook for 2025 and 2026.

“If headline inflation continues on a downward path, as we expect, the BSP in our view can look to further remove the restrictiveness in the monetary stance to support a recovery in the growth outlook, which is facing downside risks,” they said.

Nomura forecasts inflation to average 3.1 percent in 2024 before easing further to 2.7 percent in 2025. Inflation is seen to average three percent in 2026.

Headline inflation quickened to 2.5 percent in November from 2.3 percent in October, marking its second straight month of increase. This brought average inflation for January to November to 3.2 percent.

“Our forecast reflects a combination of factors such as supply-side non-monetary measures helping ease food inflation (e.g. lower rice import tariffs), our benign oil prices assumptions and relatively stable core inflation, in line with demand-side conditions,” Nomura said.

Paracuelles and Amani said the BSP could adopt a more aggressive easing approach than its regional counterparts and the US Federal Reserve.

“In our view, BSP’s more orthodox approach is appropriate and provides much-needed clarity when the global environment is highly uncertain, enhancing BSP’s policy credibility,” they said.

Last week, the BSP’s Monetary Board lowered borrowing cost by another 25 bps as it continued to pivot to a less restrictive monetary policy stance. This brought the total rate cuts to 75 bps since the central bank started easing in August.