THE BANGKO SENTRAL ng Pilipinas (BSP) is expected to continue its easing cycle until 2026 amid benign inflation and slowing economic growth, Fitch Solutions’ unit BMI said.
In a note, BMI said it expects the Monetary Board to cut its policy rate by another 25 basis points (bps) in the fourth quarter, most likely in December.
“We think BSP will maintain its policy rate at 5% in October and proceed with a 25-bp cut in December,” it said.
At its Aug. 28 meeting, the central bank delivered a 25-bp cut, bringing its policy rate to 5%. BSP Governor Eli M. Remolona, Jr. had signaled another 25-bp cut to the policy rate before the end of the year.
“But (Mr. Remolona) also described the economy as being in a ‘sweet spot,’ which we interpret as a preference to stand pat at the next meeting in October,” BMI said.
BMI said the BSP could regain some policy space by holding rates steady, as the US Federal Reserve is expected to cut rates in September.
“Easing inflationary pressure towards the end of 2025 will provide the central bank with the space to cut,” it said.
BMI expects inflation to average 1.6% this year, slightly below the central bank’s 1.7% projection.
For 2026, BMI said it now forecasts the BSP to deliver 50 bps worth of rate cuts in 2026, instead of 25 bps previously. This would bring the key rate to 4.25% by end-2026.
“We expect inflation to average 2.5% in 2026, staying within BSP’s target range. We forecast a slight weakening in the peso against the greenback from average of P58.00/USD in 2025 to P58.50/USD in 2026, which should help insulate the economy from import-induced inflation,” it said.
“Even though potential electricity rate adjustments and higher rice tariffs may exert inflationary pressures, we believe weaker growth momentum will contain overall upward pressure on prices.”
BMI projects the Philippine economy to grow by 5.2% in 2026, below the government’s 6-7% target.
“This suggests a greater need for the central bank to cut rates to further stimulate the economy. And it will have the policy space to ease further, as our Americas team forecasts that the Fed will lower the Fed fund rates by a cumulative 50 bps in 2026,” it said.
BMI said a further escalation in the global tariff war could have a bigger impact on consumer and investment sentiment, which could result in a larger drop in output.
“If such a scenario materializes with inflation expectations remaining largely anchored, the BSP would prioritize the economy and implement larger policy rate cuts,” it added. — K.K.Chan