BSP cuts rate to over 3-yr low of 4.5%
The Bangko Sentral ng Pilipinas (BSP) ended 2025 with another quarter-point rate cut, moving to bolster a slowing economy as a sweeping corruption crackdown drags down public spending and saps confidence, even as the central bank signaled that its easing cycle is nearing an end.
The latest decision of the Monetary Board, which convened on Thursday, brought the overnight borrowing rate that guides bank lending costs to 4.5 percent, the lowest in more than three years. This brought the cumulative reductions since the easing cycle started in August last year to 2 percentage points.
Not even a weak peso, which sank to a new record-low of 59.22 earlier this week, prevented the widely expected move. All 13 economists surveyed by the Inquirer last week saw it coming, believing that easing inflation could give policymakers room to shore up an economy losing momentum amid a widening corruption probe.
Economic growth slumped to a four-year low of 4 percent in the third quarter amid an ongoing graft scandal that has darkened both business and consumer confidence and stalled public works.
But ahead of the central bank’s meeting, state statisticians had reported that consumer prices rose 1.5 percent from a year ago in November, the softest pace of increase in four months, driven by cheaper rice. That marked the ninth straight month that inflation undershot the BSP’s 2 to 4 percent target.
The BSP said average price increases this year are expected to settle at 1.6 percent, below the official target band. While its inflation forecasts for 2026 and 2027 have risen slightly to 3.2 percent and 3 percent, respectively, the central bank said the outlook remains “benign”.
That said, BSP Governor Eli Remolona Jr. declared that the central bank may be nearing the end of its rate-cutting campaign, adding that any future easing—if they come at all—would likely be limited and that yesterday’s action “may be the last cut.”
“The cut will revive economic activity a bit at a time when painful governance issues around infrastructure investments have weakened government spending, business confidence and domestic demand,” Remolona said.
“The big picture is that the inflation outlook is broadly benign, with expectations well-anchored,” he added.
Even so, Miguel Chanco, an economist at Pantheon Macroeconomics in London, believed that the BSP “won’t stop easing until its benchmark interest rate falls to a terminal level of 4.25 percent.”
“Crucially, [Monetary Board] members haven’t shut the door fully,” Chanco said. “It’s clear that the Board still sees space and a reason to potentially ease further in the foreseeable future.”
But Remolona acknowledged the limits of the central bank’s ability to lift the economy, saying he was counting on a rebound in government spending to take hold soon.
“Monetary policy cannot address the corruption scandal directly. But it can compensate for the effects of that,” he said.
“The effects of that are on business sentiment, on investor confidence and all that. When those things weaken, it would weaken growth, and lower policy rates can compensate for that,” he added.
