BSP to pause rate cut cycle this week as it seeks clearer economic picture
THE BANGKO SENTRAL ng Pilipinas (BSP) could pause its easing cycle anew at this week’s meeting even as September inflation was below market expectations as it will likely want to see more data to assess the overall economic picture, analysts said.
However, risks to the country’s growth outlook due to the fragile global environment could lead to a cut at the Monetary Board’s December meeting.
“We think September inflation sets the stage for a quarter-point rate cut in 4Q 2025 to 4.75%,” Aris D. Dacanay, HSBC economist for Association of Southeast Asian Nations, said in an e-mailed note. “We think this cut will happen in December this year, and not the upcoming meeting on Thursday.”
“Though, admittedly, the downside surprise in inflation increases the risk that the BSP frontloads its rate cut, we still think the central bank would like to see more data on growth and rice prices before deciding to continue its easing cycle,” he said, adding that further policy easing is also possible next year, depending on the inflation picture.
Philippine headline inflation accelerated to 1.7% in September from 1.5% in August, the government reported on Tuesday.
This was the fastest clip since 1.8% in March but was below the median estimate of 1.9% in a BusinessWorld poll and within the central bank’s 1.5-2.3% forecast. It also marked the seventh straight month that inflation was below the BSP’s 2-4% annual target.
For the first nine months, inflation averaged at 1.7%, matching the central bank’s full-year forecast.
The BSP has cut rates by a total of 75 basis points (bps) so far this year, delivering three straight 25-bp reductions after a surprise pause in February due to uncertainties over the impact of the Trump administration’s trade policies on the economy.
It has now lowered benchmark borrowing costs by a total of 150 bps since kicking off this rate cut round in August 2024, with the policy rate now at 5%.
BSP Governor Eli M. Remolona, Jr. earlier said the current key rate is now at a “sweet spot” for both inflation and output, but one more reduction is possible within the year to support the economy if needed, which would likely mark the end of the rate cut cycle.
Citi Research likewise expects the central bank to pause on Thursday as it seeks clarity on the economic outlook.
“With regard to policy rates, our view is that growth concerns could eventually resurface, leading to a cut before the end of the year. However, as economic data is so far mixed, BSP will probably pause in the October meeting,” it said in a note.
It expects inflation to rise further and be within the 2-4% target band next year as rice deflation wears off.
Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said the BSP may take a more cautious stance as inflation is expected to quicken further in the near term.
“With inflation likely to pick up in the coming months, the pace of monetary easing may slow down. A more conservative approach is justified as cutting rates aggressively could leave the economy vulnerable to inflation shocks that might force a sharp policy reversal later on,” he said in a note.
He added that the BSP could still deliver one more cut this year, which would likely depend on the third-quarter gross domestic product data that will be released next month. He also sees space for further easing next year.
“The BSP may cut its rates further in 2026 if growth loses momentum, most likely in the first half before inflationary pressures build in the latter part of the year,” Mr. Neri said.
Deutsche Bank Research also said that the weakening economic outlook gives the central bank room for a 25-bp cut in December.
“Despite October’s policy pause, we believe BSP still has room for further easing as downside risks have not faded; we forecast a 25-bp rate cut in its December meeting,” it said in a report.
“Real interest rates are still elevated and the economy is at ‘slightly negative output gap over the near term,’ while government disbursements could slow amid its ongoing fiscal consolidation, and more recently, a corruption probe,” it added, quoting the BSP’s assessment of the economy in its August Monetary Policy report.
Meanwhile, Pantheon Macroeconomics trimmed its inflation estimate for this year to 1.7% from 1.8% and to 2.4% from 3% previously for 2026.
“Crucially, food prices are heading into next year with little to no real momentum,” it said in a report. “Retail rice prices have yet to show any upside, in spite of the temporary suspension of imports that began last month, suggesting ample supply domestically.” — Katherine K. Chan
