By Katherine K. Chan
THE Bangko Sentral ng Pilipinas (BSP) on Thursday lowered its benchmark policy rate anew by 25 basis points (bps) to 4.5% and signaled the current easing cycle is nearing its end.
The Monetary Board cut its target reverse repurchase rate for a fifth meeting in a row, bringing the rate to its lowest in over three years or since September 2022.
It likewise trimmed rates on the overnight deposit and lending facilities by 25 bps each to 4% and 5%, respectively.
This was in line with a BusinessWorld poll conducted last week where 17 out of 18 analysts anticipated a 25-bp cut at the Board’s last meeting of the year.
“Depending on the data, (the easing cycle) may have ended already. This may be the last cut,” BSP Governor Eli M. Remolona, Jr. said during a press briefing. “But depending on what else we see, we can still con-sider another cut.”
The central bank has so far lowered key borrowing costs by 200 bps since it began its easing cycle in August last year. It delivered a 25-bp cut at each of its meetings in April, June, August and October this year.
“On balance, the Monetary Board sees the monetary policy easing cycle nearing its end,” it said in a statement.
The Monetary Board’s decision to deliver a fifth straight cut came on the back of expectations that the economy will continue to weaken due to downbeat business sentiment amid the ongoing flood control controversy.
“The Monetary Board noted that the outlook for domestic economic growth has weakened further. Overall business sentiment has continued to decline on concerns about governance issues and lingering uncertainty over global trade policy,” it said.
“Nevertheless, domestic demand is expected to rebound slowly as the full impact of monetary policy easing works its way through the economy and as the pace and quality of public spending improves.”
The Philippine economy saw its weakest growth in over four years at 4%, a slump from the 5.5% seen in the second quarter and the 5.2% a year ago. This brought gross domestic product (GDP) growth to an average of 5% as of September, below the government’s 5.5-6.5% growth target.
“Sentiment remains weak due to the corruption issue as we can gauge from various sentiment indices,” Mr. Remolona said.
Business and investor sentiment has weakened as an ongoing probe revealed some government officials, lawmakers and private contractors received billions in kickbacks from anomalous infrastructure projects.
“The (rate) cut will revive economic activity a bit at a time when painful governance issues around infrastructure investments have weakened government spending, business confidence, and domestic demand,” Mr. Remolona said.
BSP Deputy Governor Zeno Ronald R. Abenoja said the GDP growth may settle around 5% by yearend.
The central bank chief said the economy might only start to rebound by the second half of 2026, noting that rate cuts usually take one to two years to take full effect.
“I was hoping we would recover by the first half,” Mr. Remolona said. “With the new data we’re getting, it looks like it’s more (going to) be in the second half rather than the first half.”
“And we’re hoping by 2027, we will be more or less back on target,” he added.
Still benign inflation likewise prompted the BSP to cut benchmark rates, after the consumer price index (CPI) eased to 1.5% in November on negative food inflation, slower than the 1.7% in October and 2.5% a year ago.
November marked the ninth consecutive month that inflation settled below the central bank’s 2%-4% target and brought the 11-month CPI to average 1.6%.
“The outlook for inflation continues to be benign, and inflation expectations remain firmly anchored,” the BSP said.
The central bank now expects inflation to end at 1.6% this year, lower than its earlier projection of 1.7%. However, it hiked its inflation forecasts for next year to 3.2% from 3.1% and for 2027 to 3% from 2.8%.
Mr. Remolona noted that supply shocks may push inflation faster, but negative investor sentiment could help it slow down.
“The high inflation scenario would be due to possible supply shocks such as power rate adjustments and increased rice tariffs. The low inflation scenario would be if investor sentiment remained negative for a protracted period,” he said.
The peso hitting the P59-per-dollar level has not impacted inflation “for now,” he said.
“It hasn’t weakened enough, and the oil prices have been benign,” the BSP chief said. “It’s when the two of them move in an adverse direction together that we begin to worry about.”
On Tuesday, the peso sank to its lowest ever at P59.22 against the dollar after the greenback strengthened on expectations of a Fed cut.
However, it recovered on Thursday after closing at P58.99 per dollar, up 22 centavos from its P59.21 finish on Wednesday, Bankers Association of the Philippines data showed.
FURTHER EASING LIMITED
While Thursday’s cut may be the end of the central bank’s easing cycle, Mr. Remolona still left the door open for another reduction if economic conditions turn “worse than they thought.”
“Any additional easing will likely be limited and will be guided by incoming data,” the BSP said in a statement.
“Looking ahead, the BSP will ensure that overall policy settings remain consistent with maintaining price stability conducive to sustainable economic growth.”
Oxford Economics Lead Economist Sunny Liu also said that this could be the last cut following the BSP’s cautious monetary policy signals, but dismal economic growth may still call for further easing.
“We expect no further rate cuts in 2026. That said, a sharper-than-expected slowdown in economic activity could still prompt additional easing,” she said in a note.
However, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the Monetary Board may deliver another 25-bp cut at its first meeting next year.
“We continue to believe that the Board won’t stop easing until its benchmark interest rate falls to a terminal level of 4.25%; we now expect the last 25-bp move to come almost immediately at its first meeting in 2026,” he said in a note.
“It’s clear that the Board still sees space and a reason to potentially ease further in the foreseeable future,” he added.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that benign inflation and the need to boost economic growth provide the BSP additional room to ease more next year.
He projects inflation to remain below target until March next year, before accelerating to between 2% and 3% by April until December.