BSP seen further reducing key rates next year

The Bangko Sentral ng Pilipinas (BSP) is seen further reducing key interest rates next year, or up to 100 basis points (bps).

To recall, the BSP delivered another 25 bps rate cut during its last meeting for this year on Thursday. The central bank has so far reduced policy rates by a total of 75 bps points this year, bringing the central bank’s target reverse repurchase rate to 5.75%, and overnight deposit and lending facilities to 5.25% and 6.25%, respectively.

In a research note, Maybank Investment Banking Group (IBG) said that it sees BSP making a total reduction in key interest rates of 100 bps for 2025.

As for the US Federal Reserve, Maybank IBG said it sees a total of 75 bps, indicating a slowdown. To recall, the US Fed reduced on Wednesday by 25 bps key interest rates in the world’s largest economy, for a total of 100 bps this year.

“(We) maintain our view of 100 bps cuts to 4.75% in 2025 for now as we keep our US Fed’s rate cuts forecasts of 75bps next year, mindful of the ‘guessing game’ – thus volatile expectations-on US Fed’s interest rate cuts,” Maybank IBG said.

On inflation, the investment bank said it sees more upward pressure compared to downside factors.

“The balance of risks to the inflation outlook for 2025 has shifted upwards mainly on cost-push factors such as higher transport costs on fare adjustments plus increase in electricity prices. The BSP assessment also includes emerging upside risks from geopolitical factors,” Maybank IBG said.

“Meanwhile the potential downside to inflation comes from the impact of lower import tariffs on rice. The monetary board maintains that inflation expectations remain well-anchored,” it added.

The BSP’s risk-adjusted inflation forecast for next year has been adjusted upward to 3.4% from 3.3%, while it remains at 3.7% for 2026.

The year-to-date average inflation from January to November is 3.2%, which is within the government’s 2% to 4% target range.

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