BSP uncertain on further easing in the near term

By Katherine K. Chan, Reporter

THE BANGKO SENTRAL ng Pilipinas (BSP) said another rate cut this year is uncertain amid current economic conditions, signaling a looming end to its current easing cycle.

Asked if he sees one more cut under the current easing cycle, BSP Governor Eli M. Remolona, Jr. said: “Even that cut is still a maybe. Hindi pa sigurado. (It’s not certain).”

On the sidelines of a BSP event on Friday, the central bank chief told reporters they would consider subdued inflation and tepid growth to spur demand in deciding on their next policy move.

However, Mr. Remolona noted that a weaker-than-expected output in the fourth quarter of 2025 may not automatically warrant a reduction to the key interest rate in February.

“It would help us decide (whether) to cut (but) it’s not the only factor,” he said, adding that inflation remains the top deciding factor for the Monetary Board.

The BSP has been on an easing path since August 2024. It has lowered key borrowing costs by a total of 200 basis points (bps), bringing it to an over three-year low of 4.5%.

In 2025, it delivered five straight 25-bp cuts, including its last two cuts driven by benign inflation and dim investor and consumer sentiment amid the flood control corruption scandal.

The economy slumped in the third quarter of last year to an over four-year low of 4% as the flood mess dampened government spending and household consumption. As of September, the Philippine gross domestic product (GDP) growth stood at 5%.

The BSP expects GDP growth to settle at sub-4% in the last quarter of 2025 to bring the full-year print to 4.6%. If realized, the government would miss its 5.5%-6.5% target for the year.

The Monetary Board is set to hold its first policy review this year on Feb. 19.

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said the governor’s tone shift implies that a sixth consecutive cut is now unlikely.

“Governor Eli’s more cautious tone signals that a February cut is no longer a base case and that the BSP is shifting toward risk management amid PHP (Philippine peso) weakness and uncertain inflation dynamics,” he said in a Viber message. “Markets may now price a shallower or earlier end to the easing cycle.”

Mr. Rivera added that the peso may gain some support if the Monetary Board decides to hold steady at its first policy review this year but noted that economic growth may get the shorter end of the stick.

“A pause at the first meeting would help anchor expectations and reduce forex (foreign exchange) pressure, but it also means less monetary support for growth, putting more weight on fiscal execution and structural reforms to carry the expansion,” he said.

The Philippine Statistics Authority will release the fourth-quarter and full-year GDP report on Thursday, Jan. 29.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said sluggish fourth-quarter growth and the peso’s volatility would call for another 25-bp cut next month.

“Two main factors for a possible (25-bp) BSP rate cut on the next BSP rate-setting meeting on Feb. 19, 2026: Delicate balancing act to further support economic/GDP growth especially if the latest data… would remain soft,” Mr. Ricafort said via Viber.

“(A)nother important consideration would be the need to stabilize the peso exchange rate versus the US dollar… (and) the expected Fed rate pause for now, as another (25-bp) BSP rate cut on Feb. 19, 2026 would narrow the interest rate differential to the lowest on record at (50 bps),” he added.

Mr. Remolona said they are considering the US Federal Reserve’s monetary policy moves but noted that “it’s one data point among many.”

The Fed has so far delivered 175 bps in cuts since September 2024, bringing its key policy rate to the 3.5%-3.75% range. It is set to have its first meeting this year on Jan. 27-28.

Mr. Remolona also on Friday said they would defend the peso during a P60:$1 scenario depending on its movement.

Asked if the BSP would intervene once it hits P60 against the dollar, he said: “Depends (on) how it gets there. Just because it’s P60 doesn’t mean we’ll defend it.”

The central bank will likely stick to minimal intervention just to prevent sharp swings in the local currency, the BSP chief added.

“We do what we’ve always done,” Mr. Remolona said. “We try to avoid sharp movements in the peso.”

The Palace earlier said that President Ferdinand R. Marcos, Jr. hopes the exchange rate will not reach the P60-per-dollar level.

According to Mr. Remolona, the peso might not trade at P60 versus the greenback anytime soon.

The peso fell to P59.46 against the dollar on Jan. 15, marking a fresh low for the local unit after it exceeded the previous record of P59.44 on Jan. 14.

It recovered to a P59.09 finish on Friday, gaining seven centavos from its P59.16 close on Thursday, based on data from the Bankers’ Association of the Philippines.