2026 BSP rate-cut bets still alive
Inflation in the Philippines is expected to stay within the Bangko Sentral ng Pilipinas’ (BSP) 2 to 4 percent target in the medium term, keeping alive expectations of another rate cut in 2026 to buoy an economy that risks undershooting government growth goals.
In its August 2025 Monetary Policy Report, the central bank pointed to gathering headwinds: rising electricity rates and statistical quirks from low year-ago food prices could push inflation toward the upper edge of its target late next year.
Even so, BSP officials said consumer prices should stay contained, while noting improvements in the accuracy of their forecasts as models are refined.
By 2027, the BSP expects global commodity markets to steady and inflationary pressures to ease, though price growth is still seen hovering above the target’s midpoint.
“The inflation forecast for 2026 is slightly lower, primarily due to the decline in oil prices. This is tempered by higher minimum wage assumptions and the lagged impact of the BSP’s policy rate reduction,” the central bank said.
“By 2027, the effects of the higher minimum wage and the lagged impact of policy rate reductions are expected to continue influencing the inflation outlook,” it added.
Analysts share the central bank’s view.
In its latest survey of external economists, the BSP reported a mean inflation forecast of 1.7 percent for 2025, slightly lower than the earlier 1.9 percent estimate. Expectations for 2026 eased as well, to 2.8 percent from 3 percent, while the outlook for 2027 held steady at 3 percent.
Growth concerns
Most analysts surveyed by the BSP also expect borrowing costs to come down further. They see the central bank trimming policy rates by another 25 to 50 basis points over the rest of 2025, followed by a similar cut in 2026, before keeping rates steady in 2027.
The rate outlook comes against a backdrop of softer growth. Since last year, the BSP has cut the key rate by 1.5 percentage points to a “Goldilocks” level of 5 percent, but Governor Eli Remolona Jr. left the door open for another reduction if demand falters.
The BSP now expects the economy to expand only at the low end of the Marcos administration’s 5.5 to 6.5 percent target in 2025, slip below the 6 to 7 percent goal in 2026, and return to within target range by 2027.
“Uncertainty over global economic policies, particularly the potential impact of US policies on global trade and investment, poses additional downside risks to domestic growth,” the BSP said.
