Philippines Set for Key Rate Cut After GDP Miss, Boosting Market Sentiment

The Bangko Sentral ng Pilipinas (BSP) is expected to cut its key policy rate to a two-year low this week, following a recent miss in the country's gross domestic product (GDP) growth target. This move is likely to boost investor sentiment and encourage foreign inflows into the Philippine market, as analysts anticipate a dovish stance from the central bank.



The Philippine economy grew by 5.6% in 2024, slightly below the government's revised target range of 6% to 6.5%. Despite the miss, the economy remains one of the fastest-growing in the region, and the outlook for 2025 is bullish, fueled by lower inflation and higher consumption and investments. The BSP's expected rate cut, along with corporate earnings reports, could provide a much-needed boost to the stock market, which has been volatile in recent weeks.

Analysts expect the BSP to announce another 25-basis point rate cut, which would bring the benchmark interest rate to 6.25%. This dovish outlook is likely to give the market a boost, as a lower interest rate makes borrowing cheaper for businesses, encouraging investment and economic activity. Japhet Tantiangco, research manager at Philstocks Financial Inc., believes that a cut in policy rates together with a dovish outlook is expected to give the market a boost.

However, not all analysts agree on the BSP's policy direction. Wendy Estacio-Cruz, research head at Unicapital Group, expects the BSP's policymaking Monetary Board to leave interest rates steady, citing the US Federal Reserve's decision to maintain its policy rates in late January. Despite this differing opinion, the market is generally optimistic about the BSP's upcoming decision, with investors eager to position themselves for potential bargain plays.



The expected rate cut could also have an impact on the peso's exchange rate, potentially leading to a weaker currency. A weaker peso makes imports more expensive, which could decrease import demand and make locally produced goods more competitive. Conversely, a weaker peso could also increase export demand and encourage foreign direct investments, as the cost of investing in the Philippines becomes relatively cheaper.

In conclusion, the BSP's expected key rate cut, following the recent GDP miss, is likely to boost investor sentiment and encourage foreign inflows into the Philippine market. This dovish stance, combined with a positive economic outlook, could provide a much-needed boost to the stock market and support the Philippine economy's continued growth. However, the actual impact of the rate cut on the market and the peso's exchange rate will depend on various factors, including global economic conditions and market sentiment.