By Katherine K. Chan, Reporter

THE PHILIPPINE ECONOMY is on track to bounce back this year as business confidence has begun to improve, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said.

“It looks like it’s (confidence) beginning to come back,” the central bank chief said during a Management Association of the Philippines (MAP) event on Wednesday held in Taguig City. “Not as fast as we would like, but it’s coming back.”

“In our projections, we think that we’ll be back to normal by the second half of 2026,” he added.

Mr. Remolona noted that the loss of confidence amid the graft scandal stalled the country’s economic growth in the second half of 2025.

In the fourth quarter of 2025, the Philippine gross domestic product (GDP) grew by 3%, its slowest in 14 years (excluding the pandemic), as investments and spending slowed amid the flood control controversy.

This brought full-year economic growth to a post-pandemic low of 4.4%, undershooting the BSP’s 4.6% forecast and the government’s 5.5%-6.5% target.

However, recent indicators, such as the S&P Global Manufacturing Purchasing Managers’ Index (PMI) and the Philippine Stock Exchange index (PSEi), have signaled that business confidence is slowly returning and the economy may be on the way to recovery.

Latest data showed that the Philippines’ manufacturing PMI rose to a nine-month high of 52.9 in January from 50.2 in December.

The PSEi rose to a near seven-month high on Wednesday, even soaring above the 6,500 line during the session. The PSEi went up by 0.37% or 24.22 points to close at 6,498.82, its best finish in almost seven months or since it closed at 6,525.04 on July 14, 2025.

For 2026, the central bank projects GDP to expand by 5.4%.

However, Mr. Remolona said they are reviewing a potential revision to their growth forecast.

Speaking to reporters on the sidelines of the MAP event, Mr. Remolona said the revival of confidence, alongside inflation falling back to target, may have narrowed the central bank’s easing space.

Asked if the BSP can still afford to cut rates anew to support the economy, Mr. Remolona said: “It’s conceivable. Again, it’s based on the data. We have to review the data.”

The benchmark interest rate currently stands at 4.5%, the lowest in over three years.

The Monetary Board has so far delivered 200 basis points (bps) in cuts since it began its easing cycle in August 2024, including five straight 25-bp reductions last year.

Mr. Remolona noted that stabilizing inflation remains their priority in deciding on the monetary policy path.

“If we can maintain price stability, that will help with confidence,” he said.

In January, headline inflation came in at 2%, marking its comeback to the BSP’s 2%-4% target for the first time in nearly a year.

INFLATION
Meanwhile, BSP Deputy Governor Zeno Ronald R. Abenoja said headline inflation may approach the 3% mark in the coming months before potentially breaching it by the second half of the year.

“If you look at the inflation path in our MPR (monetary policy report), it will move gradually close to 3% and then possibly a little above 3% by (the) second half,” he told reporters on the sidelines of the same event. “But after that, it will move closer to 3% again and then stabilize around that area.”

Mr. Remolona noted that he doesn’t mind inflation undershooting their target but said that an above-3% print worries him more.

The BSP expects headline inflation to average 3.2% by yearend, before easing to 3% in 2027.

THE PESO may settle at P59.70 against the dollar by end-2026 on expectations of an economic rebound driven by improved investor confidence, Metropolitan Bank & Trust Co. (Metrobank) said.

In a commentary dated Feb. 10, Metrobank trimmed its peso forecast for end-2026 to P59.70 a dollar from P60.80 previously.

It likewise projects the peso to end 2027 at P58.50 versus the greenback, from its earlier estimate of P58.90.

“(A)n anticipated economic growth rebound and improved investor confidence, thanks to better government spending, could support the peso,” it said.

If the bank’s 2026 forecast holds true, the local unit would end the year weaker than its P58.79 finish against the dollar on the last trading day of 2025.

The lingering effects of the flood control corruption scandal and uncertainties in the global market pushed the peso to test new lows at the start of the year.

On Jan. 15, it closed at P59.46 per dollar, breaking the previous all-time low of P59.44 recorded just the day prior.

However, it has recently strengthened amid a weak dollar. On Wednesday, the local unit hit a near four-month high after closing at P58.29 versus the greenback, up 24 centavos from its P58.53 finish on Tuesday, data from the Bankers Association of the Philippines showed.

Meanwhile, Metrobank noted that the peso could struggle to regain further strength as the country’s current account is projected to remain at a shortfall this year.

“Still, the projected current account deficit this year — although narrower than last year’s — would cap the peso’s strength,” it said.

Based on the latest central bank data, the current account balance stood at a $12.5-billion deficit by the end of the third quarter. This was equivalent to -3.6% of gross domestic product (GDP).

The Bangko Sentral ng Pilipinas (BSP) expects the current account gap to end at $15.5 billion in 2025 or -3.2% of GDP, before narrowing to $15.3 billion or -3% of GDP this year.

Metrobank also noted that the expected widening of the interest rate differential between the US Federal Reserve and the BSP could weigh on the local currency this year.

It sees the Fed delivering a total of 50 basis points (bps) in cuts this year, down from its initial projection of 100 bps, to bring the Federal Funds Rate to 3.25% by yearend.

In an earlier report, the bank said that the current economic backdrop gives the BSP room to lower its key policy rate further to 4% from the current 4.5%.

If both projections are realized, the difference between the two central banks’ benchmark interest rates would end at 75 bps. — Katherine K. Chan