THE Bangko Sentral ng Pilipinas (BSP) is expected to continue easing next year with another quarter-point rate cut likely as early as February.
“Crucially, at least one more 25bp (basis point) reduction seems to be on the table,” Pantheon Macroeconomics economist Miguel Chanco said in a commentary.
“As a result, we maintain our terminal rate forecast of 4.25 percent, which we think will be reached at the first meeting in 2026,” he added.
Key interest rates were lowered by the BSP’s policymaking Monetary Board last Thursday — the fifth straight cut this year — by another 25 basis points to 4.5 percent.
The outlook for domestic economic growth has weakened further, the central bank noted, with a corruption scandal having affected sentiment, but it added that previous cuts would lead to a slow rebound in demand and as government spending recovers.
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“On balance, the Monetary Board sees the monetary policy easing cycle nearing its end,” the BSP said following the Thursday policy meeting. “Any additional easing will likely be limited and will be guided by incoming data.”
Central bank Governor Eli Remolona Jr. reiterated this last Friday and added that any rate cut would not be aggressive to prevent a further loss of confidence and would also not be done outside of scheduled policy meetings.
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Chanco said the Monetary Board could have more room than previously expected to deliver one or even two additional rate cuts to support economic growth.
“In our view, the board is right to continue flagging up this headwind, as confidence — and by extension corporate investment plans — is likely to continue rolling over into early 2026, tugging simultaneously on capacity utilization,” he said.
“We wouldn’t be surprised at this stage if surveyed expansion plans fall back to their pandemic nadir.”
Economic growth markedly slowed to 4.0 percent in the third quarter, from 5.5 percent in April-June, as a massive flood control project scandal weighed on both state and household spending.
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This year’s 5.5- to 6.5-percent target is all but certain to be missed and central bank officials last week said the 2025 result could be “close to 5.0 percent, or sub-5.0 percent for the year.”
Remolona has said that fourth-quarter growth could fall to as low as 3.8 percent.
Growth results moving forward, Citi Philippines said, will likely be a “key in guiding forthcoming policy decisions.”
Given that inflation generally remains anchored, Citi said that the central bank would likely be “assessing the realization of growth and demand relative to expectations.”
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“FX (foreign exchange) depreciation is not viewed as a constraint on further easing, as the inflation pass-through is likely to be muted in the absence of oil price shocks,” it added.
“Accordingly, policymakers seemed comfortable with the current differential between the BSP rate and Fed Funds rate, though we think further Fed cuts would facilitate more easing by BSP should domestic conditions remain soft,” it added.
The US Federal Reserve last Wednesday cut its own rates by 25 basis points and signaled that one more could follow in 2026.
The peso closed at a new all-time low of P59.22 to the dollar last Tuesday on expectations of another rate cut. It ended Friday slightly stronger P59.065:$1.
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Citi also expects the BSP to deliver another rate cut in February with the likelihood of another in April “a risk scenario rather than a base case in our view — as at least some signs of a spending recovery may have emerged by then.”
Inflation has stayed below the BSP’s 2.0- to 4.0-percent target for the last nine months. The Monetary Board last Thursday trimmed its inflation forecast for 2025 to 1.6 percent from 1.7 percent, but raised projections for 2026 and 2027 to 3.2 percent and 3.0 percent, respectively, from 3.1 percent and 2.8 percent.
