The Bangko Sentral ng Pilipinas (BSP) may choose to keep its key interest rates unchanged to preserve available room for monetary policy and gauge the impact of its recent cuts on the economy, GlobalSource Partners said.
In a statement on October 22, GlobalSource country analysts Diwa C. Guinigundo and Wilhelmina C. Mañalac said the central bank’s move to reduce policy rates may not be enough to fight the economic downturn driven by poor governance and weak confidence.
“The case for temporary suspension does not depend on the opinion but on the follow-up and signature,” they said. “Inflation is stable, but the weakness in growth is increasingly shaped by confidence and institutional factors that interest rates alone cannot correct.”
“The recent restructuring of Governor Remolona shows this fact: relief is still possible, but not guaranteed,” said Mr. Guinigundo and Ms. Mañalac.
The Monetary Board closed the year with a fifth consecutive basis-point (bp) reduction at its Dec meeting. 11, which brought the benchmark interest rate to its lowest in three years at 4.5%.
Its latest decision comes as it sees negative inflation and a sluggish economy amid a flood control scandal that has affected investor and consumer sentiment.
Inflation eased to 1.5% in November from 1.7% in October and 2.5% last year, bringing 11-month inflation to match the central bank’s revised full-year forecast of 1.6%. November marked the ninth consecutive month that inflation remained below the BSP’s target of 2%-4%.
Meanwhile, the Philippines’ gross domestic product (GDP) growth slowed to 4% in the third quarter, the slowest rate in four years. GDP growth reached 5% at the end of September, falling short of the government’s target of 5.5%-6.5%.
BSP Governor Eli M. Remolona, Jr. he said the economy would likely remain below target until next year, possibly recovering in the second half of 2026 before returning to target in 2027.
The BSP sees economic growth hovering at or below 5% a year before rising to 5.4% next year and 6% in 2027.
“Under normal circumstances, this combination of inflation and slow growth will oppose further devaluation,” Mr. Guinigundo and Ms. Mañalac. “However, the structure of the downturn, and how markets interpret policy responses, is important.”
Although the central bank noted that the current cycle of easing may be nearing its end, Mr. Remolona said there is still room for a possible 25-bp reduction next year, depending on economic developments. He ruled out both jumbo cuts and cycle simplification.
The Board of Finance will hold its first meeting of 2026 in February.
However, Mr. Guinigundo and Ms. Mañalac said the central bank’s data-driven monetary policy approach means its use of available policy space is “conditional rather than automatic.”
They also noted that further expansion of monetary policy could increase foreign currency volatility and cause the local currency to weaken further.
The peso reached the P59-a-dollar level several times since November and dropped to a new P59.22 against the greenback on December 9, surpassing its previous record of P59.17 on November 12.
Mr. Guinigundo and Ms. Mañalac said holding fixed rates may be more effective given the current circumstances.
“A gradual suspension does not mean a transition to a tighter fiscal policy,” they said. “Financial conditions are still favourable: real rates are low, liquidity is high, and the banking system is strong. The interim measure is to allow the BSP to assess whether initial rate cuts are sufficient to support demand without generating negative confidence or exchange rate effects.”
“Sometimes, the most effective policy signal is not movement – but limited restraint,” they added. – KK Chan
