By Katherine K. Chan, A reporter
SLOW ECONOMIC GROWTH and High inflation provides the Bangko Sentral ng Pilipinas (BSP) has enough room to deliver a sixth consecutive interest rate cut at its first policy meeting this year, analysts said.
Based on a BusinessWorld In a survey conducted last week, all 16 analysts surveyed expect the Monetary Board to cut its target repurchase rate by 25 basis points (bps) on Thursday, Feb. 19.
If possible, the key policy rate will drop to 4.25% from the current 4.5%, the lowest in three years or from 3.75% in August 2022.
It will also match the benchmark set in September 2022.
Since the Monetary Board started its easing cycle in August 2024, it has so far reduced borrowing costs by a total of 200 bps.
The BSP began 2025 with a pause at its February meeting before delivering consecutive 25-bp cuts, the last two due to weak sentiment amid a slowdown in growth.
Analysts said a disappointing fourth-quarter gross domestic product (GDP) print may outweigh other factors in the central bank’s monetary policy review, as another round of easing is expected to help boost the economy.
“The Bangko Sentral ng Pilipinas is likely to cut its policy rate by 25 basis points to 4.25% on Thursday to provide support to the economy, following the worse-than-expected fourth-quarter GDP result,” Moody Analytics Assistant Director and Economist Sarah Tan said in an email.
In the last quarter of 2025, the Philippine economy grew by 3%, its worst performance in 16 years (excluding the pandemic period), as corruption in flood control continues to reduce investment and spending.
This was even weaker than the revised 3.9% expansion seen in the third quarter, or when the flood control issue began to have a negative impact on the economy.
The issue of fraud came to light in the wake of floods across the country which revealed many faulty, substandard and non-existent projects.
Investigations later revealed that officials of the Department of Public Works, legislators and private contractors were receiving compensation from the government’s infrastructure program.
This reduces 2025 GDP to below 4.4% post-pandemic, falling below the government’s target of 5.5%-6.5% year and the BSP forecast of 4.6%.
“Although the economic slowdown is a result of the massive reduction in spending by the National Government, the risk of a slow recovery in investor sentiment may force the BSP to bring policy settings below the target level of 4% to 5% more neutral so that both core inflation and the exchange rate are at levels that the BSP is comfortable with,” said Bank of the Philippine Islands (BPIist) Nemiliber Lead. the message.
In the letter, Chinabank Research said that further expansion could accelerate economic recovery, especially since the latest BSP survey showed a negative outlook among consumers and businesses in the coming year.
“Further reductions in policy rates, which may reduce lending rates, may provide additional incentive for consumers and firms to borrow in the near term for big-ticket purchases and business expansion,” he said. “This may strengthen the momentum of the country’s economic recovery.”
Based on the latest BSP Business Expectations Survey, the business confidence index (CI) for the first quarter of the year dropped to 23.7% from 49.5% in the previous quarter. Over the next 12 months, it dropped to 40.4% from 48.1%.
Consumers were also less optimistic as their CI for the first quarter was 3.6% from 6.9% last quarter, and decreased to 11.8% from 14.1% next year.
TAME INFLATION VIEW
Meanwhile, analysts say the inflation outlook remains subdued as the consumer price index (CPI) has picked up pace since December, which could justify further easing.
“The outlook for inflation also remains positive, allowing the BSP to focus on supporting economic activity where prospects for reversing sharp deflation and weak prospects remain uncertain at present,” said Euben Paracuelles, chief ASEAN economist at Nomura Global Markets Research, in an email.
In January, inflation rose to 2% from 1.8% in December but down from 2.9% printed last year. It was the first time in over a year that the CPI returned within the bank’s target of 2%-4%.
“January’s CPI rose to 2% but remains below the BSP’s 2-4% target level, keeping inflation expectations high as inflation picks up, which ironically – but does not reduce – the case for further easing,” Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said in an email.
BSP Vice Governor Zeno Ronald R. Abenoja earlier said inflation will likely move to the middle of the target during the first half of the year.
He sees inflation surpassing 3% in the second half before cooling off and settling below that mark.
By the end of 2026, core inflation is expected to reach 3.2% before slowing to 3% next year, according to the BSP.
Meanwhile, MUFG Global Markets Research noted that Thursday’s much-anticipated quarterly rate cut threatens the peso’s attractiveness.
“While the rate cut may help support growth, it also reduces the carrying appeal of the Philippine peso, leaving the currency vulnerable if dollar strength re-emerges,” the report said.
The peso opened the year weak, trading at P58- to P59-a-dollar in January and hitting a record low of P59.46 in Jan. 15. However, the local unit has been gaining strength amid a weak US dollar in recent weeks.
“Expectations that the Fed will continue to tighten this year – especially with the appointment of Kevin Warsh as the next Fed Chairman – could help reduce the peso’s weakness even if there is a small 50-bp difference,” said Chinabank Research.
At its first policy meeting of 2026, the Federal Reserve held its rates steady at 3.5%-3.75%. The Fed has so far cut its interest rate by 175 bps from September 2024.
CRYING SPACE
Meanwhile, Mr. BPI’s Neri said Thursday’s expected 25-bp cut is a close call as he sees the BSP considering a “temporary pause.”
Still, he sees room for a second cut this year in April or June, before the Board of Governors takes part in the rest of the year.
“We expect the BSP to pause once it becomes clear that core inflation is moving above the 3% level around (the third quarter),” Mr Neri said. “We don’t see them cutting anymore after their June 18 meeting.”
Patrick M. Ella, an economist at Sun Life Investment Management and Trust Corp., said he sees one potential cut in the first quarter depending on first-quarter GDP growth numbers.
“The (first quarter) 2026 GDP report to be published in May will be a highly anticipated report and should provide an indication if further cuts are needed and how spending has been since (the fourth quarter), as well as government spending and investment from the private sector,” he said in an email. “The concern is the decline in usage if this is going to come back.”
This year, the BSP forecasts Philippine GDP to grow by 5.4%, within the government’s target of 5%-6%.
Meanwhile, Pantheon Macroeconomics Asia Chief Emerging Economist Miguel Chanco said the BSP may hold its easing cycle after it cut the key policy rate to 4.25% this week as inflation will continue to rise.
“Currently, our view is that 4.25% will be the final rate, as the reduction of funds – in real terms – will continue without any increase in real prices, as inflation will gradually increase throughout this year (inflation within the stable reference rate means this is decreasing in real terms),” he said in an email.
After Feb. 19, the Monetary Board will hold five additional rate-setting meetings this year on April 23, June 18, Aug. 27, Oct. 22 and Dec. 17.
