Manila, Philippines – The Bangko Sentral ng Pilipinas (BSP) has signaled on Tuesday, Jan. 6, a winding down of its rate cut cycle on prospects that consumption will bounce back this year after borrowing costs were already lowered by 200 basis points in one-and-a-half years.
The central bank’s remarks were in response to full-year inflation in 2025 settling below target.
Full-year data released by the Philippine Statistics Authority showed inflation cooled to a nine-year low of 1.8 percent last year versus the central bank’s goal of 3 percent, give or take a percentage point.
Missing an annual goal – even as the data was more subdued than desired – does not exactly sound good news for an inflation-targeting central bank that had been providing a lifeline, through rate cuts, to an economy struggling from waning confidence from consumers and business in the aftermath of a corruption scandal and, therefore, has not been responding to the easing cycle just yet.
The BSP itself said: “The Monetary Board noted that the outlook for domestic economic growth has weakened further.”
The easing cycle that began in August 2024 has brought down interest rates by a cumulative 200 basis points, or two percentage points, to 4.50 percent (target reverse repurchase rate or RRP).
The central bank said it would wait out for those rate cuts to be felt.
“Business sentiment has continued to decline on governance concerns and uncertainty over global trade policy,” the BSP statement read.
“Nevertheless, domestic demand is expected to rebound gradually as the effects of the monetary policy easing works its way through the economy and public spending improves,” the central bank said.
The expected recovery in domestic demand is supporting the central bank’s outlook that inflation would settle within its 2 percent and 4 percent target band for 2026 and 2027.
“On balance, the Monetary Board views the monetary policy easing cycle as nearing its end,” the central bank said in its statement.
“Any further easing is likely to be limited and guided by incoming data,” it added.
But markets are not entirely convinced that the easy cash era is drawing to a close.
In a research note on Tuesday, Metrobank said it forecasts headline inflation to pick up pace to 3.3 percent this year, on low base effects from 2025 combined with “stronger demand-side pressures and higher import global commodity prices.”
“Subdued inflation, coupled with soft demand in 2026, keep the door open for the BSP to reduce policy rates further this year,” Metrobank said.
The lender projects a cumulative 50 basis points worth of cuts by the central bank this year, bringing the key policy rate to 4 percent by yearend.
