BSP may pause before final rate cut
The Bangko Sentral ng Pilipinas (BSP) may deliver one final interest rate cut this year to cap its easing cycle, analysts said, adding that fiscal policymakers must now take the lead in reviving growth.
This is to offset a graft-induced shock to consumer and business confidence, as support from monetary easing nears its limits.
In a note to clients, economists at Maybank said there was still room for one more quarter-point reduction later this year, which would bring the benchmark rate that guides bank lending costs to 4 percent.
Such a move could be preceded by a pause, they said, giving the central bank time to assess evolving inflation dynamics and incoming economic data.
“The BSP anticipates a gradual demand recovery as policy transmission takes hold and public spending improves, though BSP Governor noted limited room for further rate cuts,” Maybank economists said.
Deepali Bhargava, an economist at ING Bank, said monetary conditions were still “tighter than what current economic momentum seems able to absorb” despite the back-to-back rate cuts over the past months, suggesting that there was still scope for further easing.
“Soft government spending has become a more persistent drag, weighing not only on fiscal outlays but also on business and household confidence,” Bhargava said in a commentary. “We expect this pressure to persist at least through the first half of 2026, given ongoing investigations and unresolved political uncertainty that continue to dampen sentiment.”
Dovish cycle
At its first policy meeting of 2026, the Monetary Board last week cut the benchmark interest rate by another quarter point to 4.25 percent, the lowest in more than three years. The widely expected move brought total reductions since the easing cycle began in August 2024 to 2.25 percentage points.
But the central bank has grown more cautious about its next steps. Governor Eli Remolona Jr. said further monetary easing may do little to lift the sluggish economy, adding that lower borrowing costs must be matched by stronger government spending and credible efforts to curb graft and corruption.
Remolona also acknowledged that policymakers had underestimated the economic damage caused by the high-profile graft scandal, which has paralyzed public spending and gutted confidence.
In a separate note, economists at ANZ Research said confidence would take time to return and would need to be supported by a revival in government spending.
“A durable improvement in confidence will obviate the need for further rate cuts,” they said. “We will monitor developments in consumer and corporate confidence before reconsidering our current view that the BSP has completed its rate-cutting cycle.”
