By Katherine K. Chan, Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) lowered its key policy rate by 25 basis points (bps) for a sixth straight meeting, a move seen to assist the economy regain its momentum following a slowdown last 12 months.
On Thursday, the Monetary Board lowered the goal reverse repurchase rate (RRP) by 25 bps to 4.25%, the bottom in over three years or for the reason that 3.75% in August 2022. This matched the benchmark rate set in September 2022.
Rates on the overnight deposit and lending facilities were also trimmed by 25 bps each to three.75% and 4.75%, respectively.
The Monetary Board’s latest move met market expectations, as all 16 analysts polled by BusinessWorld anticipated a 25-bp cut.
This brought the BSP’s total reductions to 225 bps because it began its series of monetary policy easing in August 2024.
The sixth straight rate cut got here after weaker-than-expected economic growth, triggered by the flood control corruption scandal that broke out last 12 months.
“Growth has been softer than expected. Investments slowed,” BSP Governor Eli M. Remolona, Jr. said during a briefing. “We attributed this to an absence of accuracy. But soft data on sentiment showed tentative signs of recovery.”
“Our decision today may very well help to revive confidence, boosting investment and consumption. The pace of economic recovery will depend upon how quickly confidence returns,” he added.
Within the fourth quarter of 2025, the Philippine economy grew by 3%, its worst performance in 16 years (excluding the pandemic period). This brought the full-year gross domestic product (GDP) growth to a post-pandemic low of 4.4%.
The BSP had expected growth to settle at 3.8% in the ultimate quarter of last 12 months to bring the full-year print to 4.6%.
In 2025, the BSP delivered a 25-bp cut at each of its meetings in April, June, August, October, and December, with the last two prompted by a clouded growth outlook as governance issues weakened consumer and business sentiment.
“Economic growth has undershot the BSP’s expectations because of weaker domestic demand. Latest indicators point to a recovery within the second half of the 12 months, but growth will depend largely on how quickly confidence recovers,” Mr. Remolona said.
Nevertheless, the central bank slashed its GDP growth forecast for this 12 months to 4.6% from 5.4% previously. If realized, this might undershoot the federal government’s 5%-6% goal.
It likewise sees the economy expanding by 5.9% in 2027, lower than its earlier projection of 6.3%.
‘MANAGEABLE INFLATION’
A still benign inflation outlook also provided the central bank with additional room to ease, at the same time as it raised its projections amid emerging supply-side pressures.
“The outlook for inflation stays manageable,” Mr. Remolona said. “Our forecasts do indicate a slight uptick in inflation this 12 months, but that is due largely to supply-side aspects. While these aspects are largely temporary, they are going to require continued vigilance with regard to possible spillover effects.”
Headline inflation returned to the BSP’s 2%-4% goal band after nearly a 12 months because it accelerated to 2% in January.
The newest consumer price index was faster than the 1.8% recorded in December but softer than the two.9% clip a 12 months ago.
BSP Deputy Governor Zeno Ronald R. Abenoja said they now expect inflation to average 3.6% this 12 months, higher than their 3.2% estimate in December.
For 2027, the central bank projects inflation to ease barely to three.2%, still above their previous forecast of three%.
Electricity rate adjustments, costlier oil and the impact of the federal government’s flexible rice tariff scheme on local rice prices will likely add inflationary pressures this 12 months, Mr. Abenoja said.
Nevertheless, he noted that price pressures from such supply-side aspects “will not be persistent and will fade away after some time period.”
UNCERTAIN POLICY PATH
Asked how the policy path ahead looks now, Mr. Remolona said: “It’s less certain.”
He noted that consumer and business confidence is now a important concern, adding that the outlook for monetary policy easing would depend upon how soon sentiment will get better.
“We see confidence will return very soon, in a number of months. If we’re right, then we won’t need further cuts,” Mr. Remolona said.
Earlier this month, the BSP chief said they were seeing signs of recovering confidence, citing improving activity in manufacturing and the stock market, in addition to easing yields in government securities.
Mr. Remolona said the impact of weak confidence on the country’s growth prompted the central bank to “give an even bigger weight” to confidence.
“We’re now in a situation where it’s more conditional on what happens to confidence in growth,” Mr. Remolona said. “Because in December, we were more confident that confidence would return pretty soon. And the dearth of confidence actually turned out to be larger than we thought,” he added.
Nevertheless, the BSP governor also said that they are going to persist with their price stability mandate, which suggests that keeping inflation low will remain a priority in monetary policy decisions.
“We support growth, and we do want growth. But at the identical time, our important mandate continues to be inflation,” Mr. Remolona said. “So, to the extent we are able to support growth without causing inflation, we’ll support growth.”
Meanwhile, Metropolitan Bank & Trust Co. Chief Economist Nicholas Antonio T. Mapa said the central bank’s inflation outlook will likely drive its policy path going forward.
“Market was split on the choice, but BSP opted to deploy support sooner relatively than later. Any potential future easing stays contingent on the inflation outlook,” he said in a Viber message.
“Monetary authorities also appeared to have an ardent deal with confidence constructing, hinting that the easing cycle may very well be prolonged for just a little bit longer,” he added.
Capital Economics Deputy Chief Emerging Markets Economist Jason Tuvey sees scope for “a minimum of” yet one more 25-bp reduction in the next months if the economy stays weak and inflation stays manageable.
“It’s also price noting that the BSP removed the road from its previous statement that ‘the monetary policy easing cycle (is) nearing its end,’ suggesting that it stays open to the thought of further loosening,” he said in a commentary on Thursday.
“All told, if the economy stays sluggish and inflation contained, as we expect, there’s prone to be scope for a minimum of yet one more 25-bp cut to rates of interest, to 4%, over the approaching months,” he added.
In a separate commentary, ANZ Research said recovering lost confidence may take time, but improved government spending will likely speed up the method.
“Our assessment is that confidence will take time to return and can must be supported by a revival in government spending,” ANZ Research foreign exchange analyst Kausani Basak and Chief Economist for Southeast Asia and India Sanjay Mathur said. “Still, we’ll monitor developments in consumer and company confidence before reconsidering our current view that the BSP has accomplished its rate-cutting cycle.”
The Monetary Board is scheduled to have its second policy review this 12 months on April 23.