BSP to possibly cut rates again amid economic growth concerns – analysts

THE Bangko Sentral ng Pilipinas (BSP) will likely implement another quarter-point cut before the year ends given risks to economic growth, analysts said.

Monetary authorities surprised the market last Thursday by delivering another 25 basis points rate cut, citing concerns over the impact of a massive corruption scandal on the economy.

Governance issues surrounding public infrastructure spending were dampening business sentiment, BSP Governor Eli Remolona Jr. noted, prompting the central bank’s policymaking Monetary Board to continue easing.

Thursday’s policy decision saw the benchmark rate fall to 4.75 percent. With one policy meeting left for the year, analysts now expect it to hit 4.5 percent in December.

A slower growth outlook warrants such support, HSBC Global Research economist Aris Dacanay said.

“Apart from a potential slowdown in public infrastructure spending, the payback from US frontloading should eventually weigh on the economy,” he added.

Gross domestic product (GDP) growth as of end-June stood just below the government’s downwardly revised 5.5- to 6.5-percent target for 2025. Latest forecasts predict a slowdown from 2024’s 5.7 percent given global headwinds.

Last Thursday, BSP Deputy Governor Zeno Abenoja said the near-term outlook could be lower than initially seen. “There's probably a greater probability that we will be slightly below those targets that have been set by the government,” he said.

“Of course, a lot of this depends on the infrastructure spending, how it will evolve the rest of the year as well as into the next year, so we're looking at this very closely,” Abenoja added.

The government is targeting higher growth of 6.0-7.0 percent for next year but Dacanay said this was likely to hit just 5.8 percent, still “below the economy’s potential.”

‘Even deeper easing cycle’

“Given the dovish remarks by the BSP… we adjust our policy rate forecast and expect a faster easing cycle from before,” he said last week.

A projected first-quarter 2026 rate cut could instead happen this December, Dacanay predicted, with the BSP to pause over the next two years.

“But we flag that there is a risk of an even deeper easing cycle,” he added, noting that if it takes “too long for growth to return to potential, the BSP may opt to use monetary policy to pick up the slack.”

“Infrastructure spending, both public and private, will be key to determining this, given how big a growth driver both were prior to the pandemic.”

Bank of the Philippine Islands (BPI) lead economist Jun Neri also said that the central bank was likely to cut again in December and extend its easing cycle to the first half of 2026.

“Further easing could be supported by several factors, including expectations that the US Federal Reserve will also deliver additional rate cuts amid a more dovish composition of the FOMC (Federal Open Market Committee) once Chair [Jerome] Powell steps down in May 2026,” he said.

“Domestically, slower GDP growth due to issues in public infrastructure spending and downside risks to inflation from potential dumping by China may also justify a more accommodative stance,” he added.

Inflation is projected to stay close to 2 percent for the remainder of the year before rising to around 3.5 percent by mid-2026 — within the BSP’s 2.0- to 4.0-percent target.

As favorable base effects fade and rice import restrictions remain in place, further declines in food prices may be limited, allowing inflationary pressures to build again.

Vegetable prices, meanwhile, could stay high due to weather-related supply issues, but Neri said that imports from China, particularly those redirected from the US, may help ease price pressures.

He warned that cutting the policy rate further could have some “trade-offs.”

“It could limit the space for future reductions in the reserve requirement ratio (RRR) and delay the central bank’s long-term goal of bringing the RRR to zero,” he said.

Remolona has said that cuts to bank reserve requirements could be resumed next year following a reduction last March.

The BSP, said Neri, will likely pause once the policy rate reaches 4.0 percent in 2026.

“However, such aggressive easing could prove to be an overshoot, raising the risk of a sharp policy reversal later on once inflation accelerates,” he added.