BSP to extend easing cycle as economy faces ‘uphill climb’
THE BANGKO SENTRAL ng Pilipinas (BSP) will likely continue reducing benchmark interest rates until the first quarter of 2026 amid a weakening economic outlook, Metropolitan Bank & Trust Co. (Metrobank) said.
“We are aligned with BSP’s assessment that growth will likely face an uphill climb in the coming months as a tired consumer, anemic investment momentum and a challenging fiscal situation all point to growth falling below our growth potential,” Metrobank Chief Economist Nicholas Antonio T. Mapa said in a Viber message.
“Thus, we expect BSP to extend their easing cycle just a little longer with rate cuts penciled in for the December meeting and the (first quarter) of 2026.”
Last week, the Monetary Board reduced borrowing costs by 25 basis points (bps) for a fourth straight meeting to bring the policy rate to 4.75%. It has now lowered benchmark borrowing costs by a cumulative 175 bps since it began its easing cycle in August 2024.
BSP Governor Eli M. Remolona, Jr. said they cut rates amid benign inflation and to help support domestic demand as the widening corruption scandal involving state infrastructure projects has affected business sentiment and the outlook for the economy.
Mr. Remolona said another reduction is possible at their last meeting for the year scheduled for Dec. 11, with more cuts also on the table as they are now looking at a neutral rate between 4% and 5%.
“It does look like the BSP is intent on supporting moderating growth momentum with GDP (gross domestic product) now projected to slip below the government’s official growth aspiration for a third consecutive year,” Mr. Mapa said.
“It appears the governor is reassessing his view on the terminal rate, indicating that it may be lower than previously thought to be. While we’ve long been of the view that growth has been underperforming (below 6%), BSP’s primary mandate of price stability could mean that the rate cuts will come faster, but not necessarily deeper.”
Mr. Mapa said this could mean that the central bank would continue cutting rates for as long as inflation remains manageable.
“With the inflation forecast to stay close to target over the policy horizon, BSP deemed it more than necessary to shift its focus to help address the growth challenges… Monetary policy is after all a lever, to be deployed as restrictive when necessary and accommodative if needed.”
Philippine GDP growth averaged 5.4% in the first semester, slightly below the government’s 5.5-6.5% full-year target. Third-quarter GDP data will be released next month.
Mr. Remolona said they expect growth to average 5.3% this year. For 2026, the BSP sees expansion picking up to meet the low end of the government’s 6-7% goal. — Katherine K. Chan
