BSP chief leaves door open to one last cut, rules out off-cycle move

By Katherine K. Chan

THE BANGKO SENTRAL ng Pilipinas (BSP) may cut benchmark rates by another 25 basis points (bp) next year to end its current easing cycle, its chief said on Friday, but ruled out an off-cycle or jumbo move.

Asked how many cuts the central bank has room for next year, BSP Governor Eli M. Remolona, Jr. said: “Isa lang (Just one). Depends on the data.”

He however ruled out an aggressive action as this could send the wrong signal to markets.

“The cut is because the economy is weak, and demand has also weakened. So, on the demand side, we can help,” Mr. Remolona told reporters on the sidelines of the 4th Digital Financial Inclusion Awards. “But if we (deliver a) 50-bp or (an) off-cycle (cut), it will worsen the loss of confidence because they would say, ‘the BSP is desperate.’ That’s usually how it goes.”

“It is likely that if we deliver a rate cut, it will be during a regular meeting, not off-cycle.”

Mr. Remolona added that they are not considering their “Goldilocks” rate for now as they are still refining their estimates.

“So, for now, we will just focus on the output gap.”

At its last review for the year held on Thursday, the Monetary Board trimmed benchmark borrowing costs by 25 bps for a fifth meeting in a row to bring the policy rate to 4.5%, its lowest in over three years, as expected by 17 of 18 analysts in a BusinessWorld poll.

It has now lowered rates by a total of 200 bps for this easing cycle that began in August last year.

The Monetary Board will hold its first meeting for 2026 in February.

WEAK GROWTH

For its part, Fitch Solutions unit BMI said it expects the BSP to deliver two more reductions next year amid dismal Philippine growth prospects, even as Mr. Remolona already signaled an imminent end to their rate-cut cycle.

It said in a note on Friday that two 25-bp cuts may come early next year as they are “more pessimistic” on their outlook for the economy. BMI expects Philippine gross domestic product (GDP) to expand by 5.2% next year.

“On one hand, the lagged effects of 200 bps of rate cuts since August 2024, along with a swift recovery in government spending, could bolster growth and reduce the need for additional cuts,” it said. “On the other hand, further unravelling of the corruption scandal across other infrastructure projects beyond flood control projects could dampen business sentiment and prolong government underspending, widening the output gap.”

“With 2026 inflation within BSP’s target range, BSP could opt to ease rates further to support the economy.”

Mr. Remolona said on Friday that GDP growth could slow further to 3.8% this quarter from the over four-year low of 4% in the July-September period. This would bring the full-year average below 5% versus the government’s 5.5-6.5% goal.

The BSP chief said on Thursday that they expect the economy to recover by the second half of 2026, with growth seen moving closer to the government’s 6-7% target only by 2027.

Meanwhile, BMI said the peso’s weakness will persist amid a slump in foreign direct investments (FDI). It expects the exchange rate to average about P58.50 against the dollar next year.

FDI net inflows plunged to a five-year low in September at $320 million, down 25.8% from $432 million year on year, latest central bank data showed.

The peso sank to a fresh record low of P59.22 on Dec. 9 but returned to the P58 level on Thursday following the BSP’s policy decision.