GlobalSource: Rate cut a ‘wake-up call’ to Malacañang, Congress
THE BANGKO SENTRAL ng Pilipinas’ (BSP) recent policy rate reductions may fall short in boosting the economy amid slow monetary policy transmission and persistent structural issues that hinder growth, GlobalSource Partners said.
In a commentary published late on Monday, GlobalSource Principal Advisor Diwa C. Guinigundo said the Philippine economy now needs structural reforms, stronger fiscal coordination and restored confidence beyond just an accommodative monetary policy.
“Despite substantial cumulative rate reductions, economic momentum has yet to respond decisively,” said Mr. Guinigundo, who was also a former deputy governor at the BSP.
“Private consumption remains soft, business confidence weak and tentative, and investment activity highly uneven.”
In 2025, the country’s gross domestic product (GDP) grew by 4.4% — the slowest since the pandemic — after GDP expanded by 3% in the fourth quarter.
This came amid the flood control corruption scandal, wherein some Public Works officials, lawmakers and private contractors allegedly received kickbacks from some infrastructure projects.
The scandal dampened consumer and business confidence, and dragged household consumption, investments and government spending.
This pushed the Philippine central bank to extend its easing cycle as it sought to spur domestic demand and boost the sluggish economy.
Last week, the BSP delivered its sixth straight 25-basis-point (bp) cut, marking the third one prompted by growth concerns from the flood mess. This brought the key policy rate to an over three-year low of 4.25%.
The BSP has now slashed benchmark borrowing costs by a cumulative 225 bps since it began easing in August 2024.
“The recent rate cut therefore reflects both accommodation and caution, a wake-up call to Malacañang and Congress. It signals support for the economy, while recognizing diminishing returns from further easing in the absence of complementary reforms,” Mr. Guinigundo said.
“Ultimately, sustainable growth will depend not only on calibrated monetary action but also on structural improvements, fiscal coordination, and renewed confidence in the broader economic environment.”
Mr. Guinigundo said the Monetary Board could have been more cautious by holding steady at its Feb. 19 meeting, especially as inflation is expected to rise until 2027.
“In addition, a pause could have been more circumspect: inflation forecasts for 2026 and 2027 during the last policy meeting of the Monetary Board were admitted to have escalated but not disclosed. This is indicative of mounting price pressures and upside risks, a call to a more calibrated monetary stance,” he added.
The BSP had said that it now sees headline inflation potentially breaching the midpoint of its 2%-4% target by the second half to average 3.6% this year, versus its 3.2% estimate previously.
It then expects inflation to ease to 3.2% in 2027, which is still a tad faster than its earlier projection of 3%.
REALITY OF MONETARY POLICY
Mr. Guinigundo also noted that the local banking sector has tightened its credit standards in response to the economic slowdown, even as the BSP has been accommodative for over a year.
This, he said, has created more lags in monetary policy transmission.
“Banks have acted pro-cyclically: even as the BSP adopted a substantially accommodative stance, many institutions tightened their credit standards, reflecting heightened risk aversion and balance sheet caution,” Mr. Guinigundo said. “Such tightening dampens loan growth precisely when credit support is most needed, muting the intended stimulus of lower policy rates.”
BSP data showed that bank lending growth was at a near-two-year low of 9.2% at end-December. December 2025 also marked the first time since April 2024 that bank lending grew at a single-digit pace.
“This dynamic underscores a central reality — monetary policy cannot compel risk-taking or override structural constraints,” Mr. Guinigundo said.
“Logistics inefficiencies, supply bottlenecks, regulatory uncertainty, and external vulnerabilities continue to weigh on growth. Interest rate adjustments alone cannot resolve these deeper impediments,” he added.
Following the Feb. 19 meeting, BSP Governor Eli M. Remolona, Jr. left the door open to supporting economic growth through monetary policy, provided that inflation remains in check as part of the central bank’s price stability mandate.
However, he noted that the policy path ahead is now less certain as he acknowledged that monetary policy easing may be insufficient to stimulate the economy.
Further support would have to come from the fiscal side, the central bank chief added.
Meanwhile, SM Investments Corp. Group Economist Robert Dan J. Roces said inflation will likely settle within the central bank’s target band until next year.
He added that the BSP “may or may not cut” further, with future policy decisions hinging on upcoming economic data.
“Well, the BSP already said that we’re nearing the end of the easing cycle. So, that says a lot,” Mr. Roces told reporters on the sidelines of the Makati Business Club 2026 Business-Government Forum on Tuesday held in Makati City.
“Because, I think with inflation managed and growth kind of recovering, the policy will matter more,” he added. “But again, it has to be measured. So, they will have to be more data-dependent.” — Katherine K. Chan with inputs from Vonn Andrei E. Villamiel
