THE Bangko Sentral ng Pilipinas (BSP) will likely deliver three more rate cuts until 2026 to support the economy amid an anticipated slowdown, Fitch Solutions’ unit BMI said.
“(T)he BSP is poised to frontload easing to support the economy,” BMI said in an Oct. 10 note. “As such, we now expect BSP to chop by 25 basis points (bps) at its final meeting in 2025 in December to 4.5% and by one other 50 bps in 2026.”
The Monetary Board on Thursday delivered a surprise 25-bp cut, bringing the goal reserve repurchase rate to 4.75%, the bottom in over three years.
BSP Governor Eli M. Remolona, Jr. had said weakening business sentiment and investor confidence amid the continued flood control corruption scandal led to the Monetary Board’s decision.
BMI said it expects the Philippine economy to grow by 5.4% this yr, before slowing to five.2% in 2026, citing weak business sentiment as a result of the corruption mess and trade uncertainty.
That is below the federal government’s 5.5-6.5% gross domestic product (GDP) growth goal for this yr and the 6-7% goal for 2026.
“Our 5.2% growth forecast for 2026 is well below the federal government’s goal of 6-7%. For one, the US-Philippines trade deal, which leaves 19% tariffs on Philippine goods in exchange for none on American ones, will weigh on the trade balance in 2026,” BMI said.
“For one more, business confidence is prone to remain weak amid graft concerns and unpredictable US trade policy.”
BMI said its projection of 50-bp rate cuts in 2026 “could appear a meek response to what will likely be two consecutive years of growth underperforming the pre-pandemic trend.” This may bring the policy rate to 4% in 2026.
“Nevertheless, we note that the BSP has already cut rates of interest by a complete of 175 bps for the reason that current easing cycle began in (August) 2024,” it said. “We due to this fact expect the BSP to ease at a more measured pace while allowing more time for the easing to date to feed through.”
Mr. Remolona had also given clear signals that the BSP’s policy easing could proceed in December and until next yr.
“Risks to our forecast are skewed towards further rate cuts in 2026. Further unravelling of the corruption scandal across other infrastructure projects beyond flood control projects could dampen business sentiment and widen the output gap,” BMI said.
“With inflation expectations remaining well-anchored, the BSP could prioritize the economy and implement more policy rate cuts in 2026.”
BMI expects inflation to finish at 1.6% this yr, barely below the central bank’s 1.7% forecast.
For 2026, BMI sees inflation picking as much as 3.5%, faster than the three.1% projected by the BSP.
Meanwhile, BMI said the central bank has ample reserves to defend the peso, which saw a weak performance after the surprise cut on Thursday.
“The BSP has sufficient reserves to defend the currency,” BMI said.
Gross international reserves jumped to an 11-month high of $108.805 billion at end-September, from $107.1 billion in August. It is usually similar to 7.3 months’ value of imports of products and payments of services and first income, well above the three-month standard.
“Besides, there probably won’t be more selling pressure on the peso as a result of a 25-bp cut in December,” it added, referring to the Monetary Board’s Dec. 11 meeting.
Last week, Mr. Remolona said they are going to only defend the local currency if its depreciation becomes inflationary.
The Philippine peso on Monday closed at P58.245 versus the US dollar, slipping by half a centavo from its P58.24 finish on Friday, Bankers Association of the Philippines data showed. — K.K.Chan