By Katherine K. Chan
EMERGING RISKS to inflation may limit the Philippine central bank’s ability to ease further in 2026 despite an expected economic slowdown, analysts said.
John Paolo R. Rivera, a senior research fellow on the Philippine Institute for Development Studies, said one other 25-basis-point (bp) cut signaled by the central bank for 2026 wouldn’t suffice to spur the economy.
“A final 25-bp rate cut would help on the margin, however it might not be enough by itself to materially lift growth if fourth-quarter (growth) is available in around 3.8%,” he told BusinessWorld in a Viber message.
Last week, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said gross domestic product (GDP) growth within the fourth quarter might settle at 3.8%, easing from 4% within the third quarter.
If realized, it will be the slowest growth rate since 3% within the third quarter of 2011 and produce full-year expansion to 4.7%, under the federal government’s 5.5-6.5% goal.
Nevertheless, Mr. Rivera said the central bank’s current easing cycle will likely end soon as food prices and peso’s weakness pose inflationary risks.
“As for relieving space, the BSP likely has limited room left,” he said. “With growth projected to remain below goal but inflation risks still present (from food prices and the (peso’s) depreciation), BSP must balance support for growth with price and financial stability.”
ANZ Research Chief Economist for Southeast Asia and India Sanjay Mathur and economist Arindam Chakraborty noted that the peso’s recent performance against the dollar has not affected inflation, amplifying calls for one more 25-bp cut in February.
“In our view, the subdued growth and inflation prospects suggest there’s room for further rate cuts,” they said in a note released late on Thursday. “We anticipate one other 25-bp rate cut in Q1 2026, bringing the terminal policy rate to 4.25%.”
The peso has hit the P59-per-dollar several times since November, even slumping to a fresh low of P59.22 against the greenback on Dec. 9.
The Monetary Board last week lowered key borrowing costs for a fifth straight meeting by 25 bps to an over three-year low of 4.5%, citing subdued inflation and slowing growth. It has to date delivered a complete of 200 bps in cuts because it began its easing cycle in August 2024.
Mr. Remolona earlier said they may cap off their easing cycle with a final 25-bp rate cut in 2026 if economic figures prove worse than they anticipated.
ING Chief Economist and Regional Head of Research for Asia‑Pacific Deepali Bhargava said benign inflation could allow the BSP to ease further but warned that real rates of interest may climb if inflation rates fall below expectations.
“Inflation should remain inside central bank targets in 2026, allowing rate-cutting cycles to proceed in… the Philippines… and supporting a generally easier monetary stance across the region,” he said in an announcement.
“Nevertheless, ING cautions that if inflation were to undershoot expectations, real rates of interest could rise again, making a more difficult environment for each business investment and consumer demand.”
Headline inflation slowed to 1.5% in November from 1.7% within the previous month and a couple of.5% in the identical month last yr, bringing inflation to a mean of 1.6% within the 11-month period.
ING expects inflation to return inside the central bank’s 2-4% goal next yr at 3%, a tad slower than the three.2% revised forecast of the BSP.
Citi Research said the central bank might ease more in 2026 because the rise of jobless Filipinos could pull down consumption and inflation.
“With a cooling job market possibly dragging down consumption and inflation, we still expect a final 25-bp cut in (February 2026) to 4.25%, with still some (albeit reduced) risk of an extra 25-bp cut,” it said in an e-mailed note on Friday.
The country’s unemployment rate climbed to a three-month high of 5% in October from 3.8% in September and three.9% in the identical month last yr.
GOVERNANCE
Meanwhile, analysts said the economy would wish fiscal motion and governance reforms on top of monetary policy easing to totally get well.
“Gradual cuts could still surprise, but don’t depend on rates alone,” Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., told BusinessWorld via Viber. “Real boost will come if (the) government hastens motion on governance, fiscal discipline, and sector reforms. Without that, impact stays limited amid political noise and corruption concerns.”
Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., also noted that the stock market’s recent recovery can also be not enough to offset slower government spending and waning investor confidence.
“Despite recovery within the equities market and the recent short rallies observed, these aspects won’t be enough to offset the decline in government spending and investor sentiment,” he said in a Viber message. “A big a part of GDP is government spending, hence declines on this sector can have a big impact on growth indicators.”
On Friday, the Philippine Stock Exchange index climbed by 0.78% or 46.72 points to finish at 6,036.72. Week on week, it rose by 87.5 points from its 5,949.22 close on Dec. 5.
“The BSP can release money to the economic system, cut rates of interest, but when the fiscal sector is tight, economic growth can only go to date,” he added.
President Ferdinand R. Marcos, Jr. earlier vowed to spice up government spending within the fourth quarter in a bid to support economic growth.