Citi Philippines expects the Bangko Sentral ng Pilipinas (BSP) to cut interest rates by 75 basis points in 2025, even with a recent surge in inflation. The bank attributes the anticipated rate cuts to the current relatively high policy rate and the time lag in monetary policy.
Citi Philippines predicts the Bangko Sentral ng Pilipinas ( BSP ) will reduce key interest rates by 75 basis points in 2025, despite a recent increase in inflation. While acknowledging potential upside risks from scheduled electricity price hikes in January to March 2025, Citi expects inflation to remain within the policy target of 3.1 percent. They anticipate the BSP will continue its gradual 25 basis point rate cuts, starting in February 2025, during the second and third quarters.
The bank points out that the BSP has reduced its policy meetings to six times this year from seven in 2024 to allow for more data analysis. Philippine Statistics Authority (PSA) data reveals that headline inflation rose to 2.9 percent year-on-year in December 2024, exceeding November's 2.5 percent, mainly driven by higher household electricity and oil prices. Despite this, overall food inflation remained stable at 3.4 percent, with lower rice inflation mitigating other price increases. Core inflation, however, increased from 2.5 percent in November to 2.8 percent in December, reflecting rising food prices. Citi acknowledges that 2024 annual inflation remained within the target at 3.2 percent, compared to 6.0 percent in 2023. This was attributed to the BSP's tight monetary stance since late 2023 and the government's extension of tariff reductions on several food items through 2028, which likely dampened inflation expectations. Citi revised its 2025 inflation forecast upward from 2.8 percent to 3.1 percent due to anticipated electricity rate increases in the first half of 2025, while noting the potential for further adjustments in the remainder of the year, which may be partially offset by potentially lower oil prices
INFLATION INTEREST RATES BSP PHILIPPINES MONETARY POLICY
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