The central bank of the Philippines is poised to potentially lower interest rates again next month, marking a sixth consecutive cut. This move is being considered as a strategic effort to bolster economic growth, even with a slight recent uptick in inflation.
Analysts at Pantheon Macroeconomics believe a 25-basis-point reduction is likely, despite a surprise increase in December’s consumer price index. They emphasize that stimulating the economy currently takes precedence over curbing inflation, which is projected to remain within the target range for the year.
Governor Remolona has indicated a potential pause in February, but hasn’t ruled out further easing. The upcoming fourth-quarter GDP report will be crucial; a continuation of the disappointing 4% growth rate seen in the previous quarter would almost certainly trigger another rate cut.
December’s inflation rate rose to 1.8%, a slight increase from November’s 1.5%. However, the average inflation for 2025 was a modest 1.7%, the lowest in nine years, falling below the central bank’s target range of 2-4%.
Forecasts suggest inflation may edge up to 2.1% this year, still significantly below the central bank’s own projection of 3.2%. This discrepancy reinforces the argument for continued monetary easing to support economic activity.
Since initiating an easing cycle in August, the Monetary Board has already lowered benchmark borrowing costs by a cumulative 200 basis points, bringing the policy rate to a three-year low of 4.5%. The next policy review is scheduled for February 19th.
Governor Remolona has signaled that the current rate is nearing its desired level, suggesting the easing cycle is drawing to a close. Further cuts would largely depend on significantly weaker-than-expected economic growth.
Other economists, like DBS’s Han Teng Chua, foresee even more potential for rate reductions. They anticipate at least two additional 25-basis-point cuts this year, aiming to reach a neutral rate of 4% and address the concerning downside risks to growth.
However, expectations of further easing have exerted downward pressure on the Philippine peso, which recently hit a record low against the dollar. The central bank has indicated it will refrain from aggressive intervention in the foreign exchange market.
The peso’s decline to a new low of P59.355 per dollar underscores the complex interplay between monetary policy, economic growth, and currency stability as the central bank navigates its next steps.
