The Bangko Sentral ng Pilipinas (BSP) is expected to press ahead with rate cuts in the second half of 2025, with cooling inflation giving policymakers more room to support growth—moves that could ripple through local financial markets and the peso’s trajectory, BMI, a unit of Fitch Solutions, said in a report Thursday.
BMI forecasts the benchmark policy rate to fall to 4.75 percent by year-end, down from current levels, as subdued price pressures anchor the central bank’s pro-growth stance. Inflation eased to a nine-year low of 0.9 percent in July, prompting BMI to revise its full-year inflation outlook to 1.6 percent, from 2.2 percent previously.
While lower rates typically reduce yield appeal for peso assets, BMI believes currency dynamics will tilt in the Philippines’ favor. “We expect the peso to strengthen slightly from current levels as the evolving situation in the US weighs on the dollar,” the firm said. The peso closed at P57.22 per USD recently.
BMI sees the peso ending the year marginally firmer than its current spot rate, arguing that sustained risks to US investor confidence and softer dollar demand could offset the BSP’s easing cycle.
Growth, meanwhile, remains uneven. The economy expanded by 5.4 percent in the first quarter before inching up to 5.5 percent in the second quarter—well below the government’s 6 to 7 percent target. This weaker momentum underpins expectations that the BSP will prioritize liquidity support over inflation control.
“Amid growing economic uncertainty, we expect the BSP to stay pro-growth in H2 2025,” BMI noted.
For investors, the policy path signals continued pressure on domestic yields but possible near-term support for equities and credit markets, while currency traders will be watching whether peso strength is sustained if global dollar weakness deepens.
