The Bangko Sentral ng Pilipinas (BSP) may choose to keep its key interest rates unchanged to preserve available monetary policy space and weigh the impact of its recent cuts on the economy, GlobalSource Partners said.
In a commentary dated Oct. 22, GlobalSource country analysts Diwa C. Guinigundo and Wilhelmina C. Mañalac said the central bank’s move to ease policy rates may not be enough to counter the economic slowdown driven by poor governance and weak confidence.
“The case for a pause rests not on theory but on sequencing and signaling,” they said. “Inflation has stabilized, but growth weakness is increasingly shaped by confidence and institutional factors that interest rates alone cannot fix.”
“Governor Remolona’s recent recalibration reflects this reality: easing remains possible, but not assured,” Mr. Guinigundo and Ms. Mañalac added.
The Monetary Board capped off the year with a fifth straight 25 basis-point (bp) cut at its Dec. 11 meeting, which brought the benchmark interest rate to its lowest in over three years at 4.5%.
Its latest decision came as it sees benign inflation and a still-weak economy amid the flood control scandal that affected investor and consumer sentiment.
Inflation eased to 1.5% in November from 1.7% in October and 2.5% a year ago, bringing 11-month inflation to match the central bank’s revised full-year forecast at 1.6%. November marked the ninth consecutive month that inflation settled under the BSP’s 2%-4% target.
Meanwhile, the Philippine gross domestic product (GDP) growth slumped to 4% in the third quarter, the slowest rate in over four years. GDP growth averaged 5% at end-September, falling short of the government’s 5.5%-6.5% goal.
BSP Governor Eli M. Remolona, Jr. said the economy will likely undershoot targets until next year, with a possible recovery by the second half of 2026 before returning to target in 2027.
The BSP sees economic growth hovering at or under 5% by yearend before picking up to 5.4% next year and 6% in 2027.
“Under normal circumstances, this combination of subdued inflation and slowing growth would argue for further rate cuts,” Mr. Guinigundo and Ms. Mañalac. “However, the composition of the slowdown, and how markets interpret policy responses, matters.”
Although the central bank noted that the current easing cycle may be nearing its end, Mr. Remolona said there is still room for a potential final 25-bp cut next year, depending on economic developments. He has ruled out both a jumbo cut and an off-cycle easing.
The Monetary Board will hold its first meeting of 2026 in February.
However, Mr. Guinigundo and Ms. Mañalac said that the central bank’s data-driven monetary policy approach means that its use of available policy space is “conditional rather than automatic.”
They also noted that further monetary policy easing could amplify foreign exchange volatility and cause the local currency to weaken further.
The peso has hit the P59-a-dollar level several times since November and slumped to a fresh of P59.22 against the greenback on Dec. 9, exceeding its previous record of P59.17 on Nov. 12.
Mr. Guinigundo and Ms. Mañalac said holding rates steady may be more effective given the prevailing circumstances.
“A pause in further easing does not imply a shift to tight monetary policy,” they said. “Financial conditions remain accommodative: real rates are low, liquidity is ample, and the banking system is sound. What a pause does is allow the BSP to assess whether the initial rate cut is sufficient to support demand without generating adverse confidence or exchange-rate effects.”
“Sometimes, the most effective policy signal is not movement — but measured restraint,” they added. — K.K. Chan
