CENTRAL BANKS in the Asia-Pacific including the Bangko Sentral ng Pilipinas (BSP) are expected to cut rates further this year, S&P Global Ratings said.
“As inflation eases across the region, we expect central banks to cut rates, particularly in the slowing economies,” it said in a recent report.
S&P said it sees the Philippines’ benchmark rate ending at 4.75% this year, which implies 100 basis points (bps) worth of rate cuts in 2025.
The BSP put its easing cycle on hold after it kept interest rates steady at 5.75% last month, citing global trade uncertainties.
The central bank slashed rates by a total of 75 bps in 2024.
Despite the pause, BSP Governor Eli M. Remolona, Jr. said that they are still in easing mode. He said there is space for “a few more” rate cuts this year, signaling the possibility of up to 50 bps or even 75 bps of easing if economic output is much weaker than anticipated.
S&P noted that while growth in the region is slowing, easing inflation “will allow for more rate cuts.”
“Our economics team expects most Asia-Pacific economies will see slower growth in 2025. However, the degree of change varies widely,” it said.
S&P sees Philippine growth averaging 6% this year and 6.2% in 2026. This would be within the government’s 6-8% targets this year and in 2026.
The Philippines’ gross domestic product (GDP) grew by 5.6% in 2024, falling short of the government’s 6-6.5% full-year target.
The BSP earlier said it sees economic growth settling at the lower end of the government’s 6-8% targets from this year until 2026, citing elevated global commodity prices and heightened trade uncertainties.
Meanwhile, the credit rater expects headline inflation to settle at 3.1% this year and 3.2% in 2026. This is well within the BSP’s 2-4% target.
The BSP forecasts inflation to average 3.5% this year and 3.7% next year, accounting for risks.
‘DIFFICULTIES AHEAD’Meanwhile, the debt watcher said that the rating momentum in the region has “turned negative, flagging difficulties ahead.”
“Positive rating actions outnumbered negative ones substantially following first-half and third-quarter results last year,” it said.
“However, ratings momentum dipped into the negative from the start of the year in the wake of rapid US policy changes.”
In November, S&P Global affirmed its “BBB+” long-term credit rating for the Philippines but raised its outlook to “positive” from “stable” to reflect the economy’s strong growth potential amid improved institutional strength.
“The measures have triggered caution among firms, volatility in the financial markets, and have generally reduced visibility,” it said.
S&P said it expects firms to “tread more carefully through the year.”
“Governments across Asia-Pacific will be standing by to provide support. This raises the possibility of a range of outcomes, including some positive ones, particularly if direct and indirect effects of new US tariffs turn out to be less adverse than feared.”
TARIFF IMPACTThe credit rater also noted the impact of the United States’ tariff war on businesses in the region.
“Most rated firms in the region can manage much of the direct impact of higher US duties given their typically low reliance on that market. However, indirect stresses pose material risks to many sectors.”
“Indirect effects may include a regional or global economic slowdown, or the risk that countries dump cheap goods on markets to offset a loss of access to the US,” it added.
US President Donald J. Trump is planning to impose reciprocal tariffs on countries that tax US imports in early April.
Since taking office in January, Mr. Trump has imposed a 20% levy on all Chinese imports and a 25% tariff on all steel and aluminum imports.
S&P said that 84% of firms in the region are investment grade, which implies “substantial resilience.” These rated firms are seen as “well positioned to withstand potential tariff effects.”
“However, downgrades have outnumbered upgrades in Asia-Pacific since the start of 2025. This suggests to us that this year may be more challenging than 2024,” it said.
“Ratings concentrations at the lower end of investment grade, and a growing bias toward negative outlooks in some countries and sectors, point to pockets of risks.”
The region’s trade surplus with the US also puts it at risk from restrictive tariffs. After China, Southeast Asia has the second-largest trade surplus at $241 billion.
“Most countries in Asia-Pacific have limited direct exposure to the US as an export market, but variability is high.”
The US is the top destination for Philippine-made goods. In 2024, exports to the US were valued at $12.12 billion or 16.6% of total export sales.
On the other hand, the value of Philippine imports from the US stood at $8.17 billion or 6.4% of total imports in 2024.
While there are limited direct effects, material indirect risks still threaten the region, S&P said.
“Asia-Pacific countries with large export sectors are exposed to the indirect effects of US tariffs, which may trigger a global or regional slowdown,” it said.
“To offset loss of US sales, goods intended for export to the US may be redirected to regional markets at lower prices. This is an important secondary risk that may hit issuer margins and disrupt their sales.” — Luisa Maria Jacinta C. Jocson
