Graft probe fallout boosts odds of Dec cut
A December rate cut now appears increasingly likely, as a string of new data underscored the heavy economic toll of the ongoing graft probe, analysts said, with monetary authorities expected to compensate for a muted fiscal support.
Nicholas Mapa, chief economist at Metrobank, said growth last quarter surprised “on the downside.”
“With inflation still below target and forecast to remain target consistent over the policy horizon, the BSP is likely to consider cutting rates further to support sagging growth momentum,” Mapa said.
Euben Paracuelles and Yiru Chen, economists at Nomura Global Markets Research, said the sharp drop in government spending reinforced their view that the “bad” scenario was already unfolding amid the deepening investigation.
“Based on our analysis of similar episodes in the past, we believe the unintended fiscal tightening will likely persist for one to two quarters from here,” Paracuelles and Chen said, adding that average economic growth this year may slow to 4.7 percent, from 5.7 percent in 2024.
“This implies the output gap is widening materially, so we still expect BSP to cut by 25 basis points in December and in the first quarter of 2026, taking the policy rate to 4.25 percent,” they added.
After data showed the economy expanding just 4 percent in the third quarter—its slowest pace in over four years—President Marcos’s economic team acknowledged that the official macroeconomic targets may need adjustment to reflect the challenging realities created by the antigraft crackdown, which has implicated lawmakers, members of the Cabinet, government engineers and some private contractors.
Last week, the Bureau of the Treasury reported that public expenditures contracted by nearly 8 percent in October while revenues sagged by 6.6 percent, after the sweeping cleanup delayed infrastructure projects as authorities grew more cautious in awarding contracts.
The negative impact may have also spilled over to consumer spending, which historically drives about 70 percent of total output. Despite tame inflation and lower borrowing costs that could have bolstered household purchasing power, private consumption grew only 4.1 percent in the third quarter, a four-year low.
Should the BSP decide to cut rates in December, it has enough policy room to do so.
According to a median estimate from 10 economists polled by the Inquirer last week, the consumer price index may have risen 1.6 percent in November. If that forecast holds, the reading, to be released by the Philippine Statistics Authority on Dec. 5, would settle below the 2- to 4-percent target range of the central bank.
Since August last year, the central bank has cut the key rate that banks use as a guide when pricing loans by 175 basis points to 4.75 percent, with Governor Eli Remolona Jr. hinting at further reductions to shore up economic growth.
