BSP: Corruption scandal setback temporary
The economic slowdown expected from the fallout of the flood control corruption scandal may prove to be “short-lived,” lasting only two to three quarters, the Bangko Sentral ng Pilipinas (BSP) said, adding that the economy may “more than catch up” with the momentum lost by 2027.
In an interview with One News TV on Friday, Governor Eli Remolona Jr. said the recovery was likely to begin in 2026, as government spending rebounds from the impact of the scandal, which has led to stricter payment rules and the suspension of several public works projects.
The pace of that rebound, he said, would determine how much further the central bank could ease policy in the months ahead. The BSP is also watching for signs of improvement in business sentiment, which has been shaken by the widening probe into alleged graft in infrastructure spending.
As it is, the government aims to keep infrastructure investment at 5 to 6 percent of gross domestic product—spending seen as crucial to meeting the Marcos administration’s 5.5 to 6.5 percent growth target this year.
“It’s a reduction in government spending. So, that does have some effect on growth. I still think the bigger effect is the one from business sentiment,” Remolona said.
“Now, the cut in spending is temporary. So, they’re going to go back to spending in a few months. So, that will also help. And I think depending on how the corruption scandal is resolved, we could see a recovery in business sentiment,” he added.
At its meeting last Thursday, the Monetary Board voted to cut the benchmark interest rate by a quarter point to 4.75 percent, citing the need to shore up business confidence bruised by a deepening investigation into dubious flood control projects. “It wasn’t unanimous, but it was overwhelming, I would say, in favor of a cut,” Remolona said.
The move caught many by surprise: only six of 16 economists surveyed by the Inquirer last week had seen the reduction coming. At a news conference, Remolona said the “sweet spot” for the policy rate was now between 4 and 5 percent, adding that the central bank still had room to ease further — possibly as soon as December.
In a commentary, Michael Wan, senior currency analyst at MUFG, said the BSP could deliver additional cuts in December and again in April next year, which would bring the benchmark rate down to 4.25 percent by the second quarter of 2026.
Those easing measures, Wan said, could coincide with a reduction in banks’ reserve requirement ratio from 5 percent to 4 percent “at the start of the year.”
“To us, the most important takeaway was a clear dovish tone from BSP Governor Remolona,” Wan said.
Analysts at Citi Research also believed that two more quarter-point cuts would likely happen––one in December and another in February 2026, or after the release of the fourth quarter economic data. “The statement was clearly dovish, downplaying inflation risks amidst a downgraded growth outlook, especially for domestic demand,” they said.
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