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The Philippine central bank, BSP, cut the policy rate by 25bp on Thursday to 5.5%, retaining a dovish bias in midst of a challenging external environment. March inflation at 1.8% yoy was within the BSP’s forecast range of 1.7-2.5% and on target, with Governor Remolona signalling that weak price pressures will on balance allow authorities to consider further policy easing to support growth. Inflation forecasts have also been dialled down vs February, with the risk-adjusted inflation forecast for 2025 from 3.5% to 2.3% and 2026 from 3.7% to 3.3%. Onshore markets were also relieved by the 90-day pause on tariffs announced by the US, even as reciprocal rate levied on Philippines was comparatively lower at 17% vs regional peers. Re-imposition of tariffs, down the line, are seen as a risk for electronic exports which form bulk of the shipments, apart from apparel, footwear and textile products. On policy, tying the subdued growth impulse, benign inflation, and dovish guidance, we expect 50bp more cuts in 2025 (vs 25bp earlier).
News of the delay in the tariff rollout helped improve risk sentiments in the Indonesian markets on Thursday. Onshore markets had returned this week from a long Lebaran break, triggering a sharp correction in JCI equity index since Tuesday, pushing the rupiah to a record low vs USD. Authorities had signalled that all hands were on deck, intervening aggressively in the offshore and spot markets to defend the currency. Sentiments stabilised on Thursday. Finance Minister Indrawati cautioned that US tariffs might shave 0.3-0.5percentage points from domestic growth, in line with our estimate (DBS Weekly). She also pointed to potential relief on the domestic fiscal math, with Mar revenues to rise 9% yoy compared to declines in Jan-Feb. Concurrently, the government plans to provide concessions on the trade front to provide relief to businesses according to the press, including a) tax and customs administrative reforms to reduce the tax burden by 2%, which can further rise to 30% if admin processes are further simplified; b) rate of import income Tax (PPh) will be reduced from the previous 2.5% to 0.5%; c) adjustments made to the import duty rates for products originating from the US under the MFN category - rates of 5-10% will be decreased to 0-5%; d) export duty rates for crude palm oil commodities will be adjusted, which can potentially lower the financial burden on businesses by 5%. These changes, when approved, can result in cumulative cost reduction in burden to 14%, and lower the effective tariff burden. Global markets are, meanwhile, returning to a cautious mode on Friday, as seen by a jump in VIX and interest rate vols. Further weakness in the rupiah and bonds, due to global uncertainty and lingering lack of clarity on domestic issues, might push the markets to price out rate cuts this quarter. 
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