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Philippine Finance Chief Sees Slower Rate Cuts

by Celia

Philippine Finance Secretary Ralph Recto has indicated that while the country’s central bank will continue to reduce interest rates this year, the pace of cuts may be slower than in 2024 due to rising geopolitical tensions and uncertainties surrounding U.S. policies.

Speaking to Bloomberg Television on the sidelines of the World Economic Forum in Davos on January 20, Recto explained that the government plans to return to the global debt market, likely in the first half of 2025, to raise US$3.5 billion. The debt sale, which will primarily be denominated in U.S. dollars, is being supported by talks with eight banks.

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While Recto did not directly address the potential impact of U.S. tariffs on the Philippines, he noted that President Donald Trump’s policies could lead to inflationary pressures globally. These pressures, in turn, could impede the central bank’s ability to implement aggressive rate cuts. Recto, who is also a member of the central bank’s Monetary Board, projected a modest reduction of 50 to 75 basis points in the country’s key interest rates for 2025, with cuts possibly spaced as much as 25 basis points apart each semester.

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Despite these concerns, Recto emphasized that the Philippines is unlikely to be directly affected by Trump’s tariffs. However, if inflation rises globally due to these tariffs, it could hamper the country’s ability to ease borrowing costs. Recto also cited global uncertainties and geopolitical risks as significant challenges to economic stability.

Recto’s comments come amid the backdrop of Trump’s second presidential term, during which the U.S. is expected to pursue tougher trade policies and immigration reforms. While Trump refrained from implementing China-specific tariffs on his first day in office, he has directed his administration to address perceived unfair trade practices and investigate China’s compliance with previous agreements. This uncertainty has led to a decline in the U.S. dollar, strengthening foreign currencies, including the Philippine peso.

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The peso, which has depreciated by approximately 1% against the U.S. dollar this year, opened 0.3% stronger on January 21, signaling some resilience in the face of global economic shifts.

Recto also acknowledged that despite a series of rate cuts from August to December 2024, borrowing costs in the Philippines remain elevated. However, he pointed out that strong remittances from overseas Filipino workers and other dollar sources have eased the pressure for additional foreign borrowing.

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