and rate cuts Analysts said both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve could put some pressure on the peso in the near term, but that could help stabilize markets and investor sentiment.
Louis A., head of sales for Regina Capital Development Corp. “Both the Fed and BSP signaling room for another rate cut generally point to a more supportive liquidity backdrop… Another cut from both central banks is likely to exert more mild pressure on the peso's depreciation as the rate differential will persist, while also increasing demand for government securities in the short term as investors may take advantage of lower policy rates and softer yield expectations,” Limlingan said in a Viber message.
“In the medium term, further easing could help stabilize financial conditions and partially support risk sentiment.”
The BSP cut the benchmark borrowing costs by 25-basis-point (bp) for the fifth consecutive time on December 11, bringing the policy rate to a three-year low of 4.5%.
It has reduced benchmark rates by a total of 200 bps since the start of the easing cycle in August 2024. BSP Governor Eli M. Remolona, Jr. is leaving the door open to a final 25-bp cut this year to help boost the economy amid a bleak outlook due to a widespread corruption scandal involving government infrastructure projects that has hit public spending and investor confidence.
The Monetary Board will hold its first meeting of this year on February 19.
Meanwhile, the Fed cut its target rate by 25 bps for the third consecutive time at its December 9-10 meeting to bring it to the range of 3.5%-3.75%. Its next meeting will be held on January 27-28, Reuters reported, with investors expecting the central bank to leave its benchmark rate unchanged.
The Fed agreed to cut interest rates at its December meeting only after deep debate about the risks facing the US economy at this time, according to minutes of the latest two-day session.
Some of those supporting the rate cut acknowledged that given the various risks facing the US economy, “the decision was very balanced or they could have supported keeping the target range unchanged”, according to the minutes released on Tuesday.
“Most participants” ultimately supported the cuts, with “some” arguing that it was an appropriate forward-looking strategy “that will help stabilize the labor market following the recent slowdown in job creation”.
However, others “expressed concern that progress toward the Committee's 2% inflation target has stalled.”
John Paolo R., senior research fellow at the Philippine Institute for Development Studies. “Another rate cut from the BSP and Fed is likely to push yields lower and demand for GS (government securities) will remain strong as investors position for a prolonged easing cycle. For the Philippine peso, additional cuts could lead to mild short-term pressure, but if global conditions remain stable and inflows are maintained, this may be manageable,” Rivera said in a Viber message.
However, further policy adjustments by both central banks may not be enough to boost investor sentiment, he said.
“While rate cuts help liquidity and valuations, they may not be enough to completely offset weak sentiments from slower growth expectations. Monetary easing may soften markets, but restoring confidence will still depend on improved growth prospects, fiscal execution and clear policy signals.”
In 2025, US President Donald J. Trump's trade policy changes, which he said were aimed at reasserting dominance of the world's largest economy, had sparked turmoil in global financial markets, as well as geopolitical concerns.
In the Philippines, a corruption scandal allegedly linking Public Works Department officials, lawmakers and private contractors to corruption in unusual flood control projects also weighed on investor sentiment, particularly in the second half of the year, causing stocks to hit multi-year lows and the peso to new record lows. , AMC Sy with reuters