Monetary easing builds conditions for credit recovery, says Deutsche Bank

Despite subdued credit activity, Deutsche Bank Research says the Bangko Sentral ng Pilipinas’ (BSP) 125-basis point policy rate cuts since August 2024 are helping lay the groundwork for a broader economic rebound, with further easing possible in the near term.

In a commentary dated July 4, the global bank acknowledged that lending growth has yet to show a significant upturn, but it attributed this largely to prevailing economic uncertainties rather than to the effectiveness of monetary policy.

“We agree to some extent, as overall credit growth has not gained much momentum despite the BSP’s cumulative 125 bps rate cuts so far,” Deutsche Bank noted. However, it emphasized that factors such as geopolitical risks and trade frictions are weighing more heavily on business sentiment and investment decisions.

The BSP’s policy rate currently stands at 5.25 percent, down from 6.5 percent at the start of its easing cycle. BSP Governor Eli M. Remolona Jr. earlier said that while rate cuts alone may not fully offset growth moderation, recent inflation and growth trends allow room for continued monetary support.

According to BSP data, bank lending by universal and commercial banks rose by 11.2 percent year-on-year in April, a slight slowdown from March’s 11.8 percent. Credit expansion across key sectors like real estate, trade, and manufacturing remained moderate.

Deutsche Bank also pointed to broader global factors impacting market confidence, including resurgent trade protectionism and escalating tensions in the Middle East. These developments, it said, have caused businesses to adopt a more cautious stance despite the availability of cheaper credit.

Still, the bank sees upside ahead. With June inflation remaining well below target at 1.4 percent and economic growth gradually firming, it expects another 25-bps rate cut in August—potentially bringing the benchmark rate to 5 percent.

“Given current macroeconomic indicators and a relatively stable peso, the BSP still has policy space to further support recovery,” Deutsche Bank said, noting that additional cuts could follow depending on inflation trends and signals from the US Federal Reserve.

The Philippine economy grew by 5.4 percent in the first quarter of 2025, showing resilience amid external headwinds. Analysts say continued monetary easing, combined with improved clarity on global trade policy, could encourage businesses to unlock investments and support a stronger lending cycle in the second half of the year.