A shift in monetary policy could be coming sooner than expected, potentially as early as the first meeting of 2026. The Bangko Sentral ng Pilipinas (BSP) is carefully considering further easing, driven by persistently subdued inflation and a disappointing economic performance last year.
Governor Eli M. Remolona, Jr. acknowledged the possibility of a rate cut in February, stating it was “on the table,” though he cautioned it wasn’t highly probable. The central bank is closely monitoring economic indicators, balancing the need for stimulus against potential risks.
December’s inflation rate was described as “reasonably low,” but concerns linger over the nation’s economic growth. Projections suggest the Philippines may fall short of its government-set targets for 2025, adding pressure for potential policy adjustments.
Remolona indicated the BSP is nearing its desired policy position, leaving room for either further cuts or a pause. He emphasized the unlikelihood of raising rates in 2026, signaling a clear bias towards maintaining or lowering the current stance.
The Monetary Board concluded last year with a series of cuts, bringing the key policy rate to a three-year low of 4.5%. This represents a total reduction of 200 basis points since the easing cycle began in August 2024, demonstrating a proactive approach to supporting the economy.
Preliminary estimates suggest the country’s gross domestic product (GDP) grew by only 4.6% last year, significantly below the government’s 5.5-6.5% target. A corruption scandal involving flood control projects is believed to have eroded both consumer and business confidence, hindering economic expansion.
Further easing, however, is not guaranteed and hinges on future economic developments. The BSP has repeatedly stressed that additional cuts will be data-dependent, requiring a clear justification based on evolving conditions.
Remolona clarified that multiple further reductions would likely indicate a more severe economic downturn than currently anticipated. A significant negative surprise in economic data would be needed to trigger more than one additional 25 basis-point cut.
Specifically, if economic growth dips below 5% this year, the BSP would seriously consider another rate reduction beyond the initial 25 basis points. The current forecast for 2026 anticipates a 5.4% growth rate, but a fall below 5% would necessitate a stronger policy response.
The central bank anticipates a sluggish first half of 2026, with a potential recovery in the second half. This outlook underscores the delicate balance the BSP faces as it navigates the complexities of stimulating growth while maintaining economic stability.
