Metrobank Research has projected that declining rice prices will help maintain inflation at a stable 2% for the remainder of the year, enabling the Bangko Sentral ng Pilipinas (BSP) to consider further interest rate cuts to support economic growth. In its latest commentary, the bank highlighted that lower rice prices, a staple in Filipino households, could offset potential increases in oil prices due to geopolitical tensions, particularly in the Middle East, as reported by The Inquirer. 

Despite the anticipated stability in inflation, Metrobank has retained its full-year inflation forecast for 2024 at 3.2%. The bank estimates that domestic price growth could average 2.9% in 2025, with a slight uptick to 3% in 2026. If these predictions hold, inflation will remain comfortably within the BSP's target range of 2 to 4%, thus allowing monetary authorities to continue reducing borrowing costs. This strategy aims to stimulate consumption, a key driver of economic growth.

The recent drop in rice prices is expected to exert downward pressure on headline inflation, aided by lower tariffs and increased local supply following the harvest season. Metrobank noted that this context supports the BSP's potential for ongoing monetary easing. Indeed, the BSP has already cut the policy interest rate by a quarter-point to 6%, with Governor Eli Remolona Jr. indicating that further cuts are likely this year and into 2025, as the bank seeks to transition to a less restrictive monetary policy.

The Philippines has gained sufficient room to slash its policy rate, following a drop in inflation to a four-year low of 1.9% in September. With inflation now stabilised within the target range, the BSP faces the opportunity to relax monetary conditions amid forecasts that the economy may grow below expectations this year.

While Remolona suggested a possible 25-basis-point cut at the Monetary Board's December meeting, he deemed an outsized reduction of half a point unlikely. Overall, the BSP chief did not dismiss the possibility of cumulative cuts amounting to 100 basis points in 2025. Meanwhile, the BSP has revised its risk-adjusted inflation forecast for 2024 down to 3.1%, from a previous estimate of 3.3%, remaining within the desired range.

However, the central bank slightly increased its risk-adjusted forecasts for 2025 and 2026 to 3.3 and 3.7% respectively, taking into account potential hikes in electricity rates and increased minimum wages in regions outside Metro Manila. Ultimately, the BSP acknowledged that the balance of risks for the upcoming years has shifted towards the upside, reflecting a more complex economic landscape.