Nomura bets on 2 more BSP rate cuts
The Bangko Sentral ng Pilipinas (BSP) may deliver two additional rate cuts this year to shore up an economy that is expected to trail much of Asia in 2026 amid a widening corruption scandal that has battered confidence, Japanese investment bank Nomura said.
In a note to clients, the Japanese investment bank said it was sticking to its forecast that the central bank would reduce rates by a further half percentage point over the next two meetings of the Monetary Board, bringing the overnight borrowing rate that guides bank lending costs to 4 percent.
Nomura acknowledged that its view runs counter to recent signals from the BSP, which has suggested the easing cycle is nearing an end and that any further cuts would likely be limited to a single quarter-point move. The firm said its forecast reflects expectations that growth would disappoint this year, leaving the Philippines—alongside China and Thailand—among Asia’s likely laggards in 2026.
“Our forecast is underpinned by our more cautious view on the growth outlook, which is the overriding policy consideration for BSP, in our view, with inflation remaining benign,” Nomura said.
“We think uncertainty remains high regarding the resolution of the corruption scandal, and based on our scenario analysis, we think fiscal drag will remain for another one to two quarters from here, causing headline GDP growth to undershoot official expectations and therefore prompt further monetary easing,” it added.
Last week, economic managers in the Marcos administration scaled back their growth ambitions as a widening corruption scandal delayed public works and eroded both business and consumer confidence. The government cut its growth target to 5 to 6 percent for this year and to 5.5 to 6.5 percent for 2027, down from the earlier goal of 6 to 7 percent for 2026 through 2028.
Actual growth had already slowed to a four-year low of 4 percent in the third quarter of 2025 amid the sweeping antigraft drive. BSP Governor Eli Remolona Jr. had said the economy may have expanded by an average of 4.6 percent in 2025, which, if realized, would mark the weakest pace since 2011, excluding the pandemic-induced contraction in 2020.
To help “offset” the drag from the graft fallout, the BSP cut its benchmark rate by a quarter point to 4.5 percent at the Monetary Board’s Dec. 11 meeting. The move brought total reductions since the easing cycle began in August 2024 to 2 percentage points.
Should the BSP opt to provide additional support to the economy, it has ample room to do so. Inflation rose to 1.8 percent in December from 1.5 percent a month earlier, latest data showed, bringing the 2025 average to 1.7 percent—well below the central bank’s 2- to 4-percent target range.
Looking ahead, Nomura said the peso’s weakness would unlikely stop the central bank from providing support to the economy, noting that the inflation pass-through from the currency depreciation remains limited.
“We think this emphasis in the forward guidance just reflects the goal of the monetary board to give a clearer signal that the easing cycle is nearing the end after delivering a substantial 200-basis point in rate cuts,” the bank said.
“Nonetheless, BSP still indicated a data dependent approach even if acknowledging scope for further rate cuts may be limited, which we think is sensible given the uncertainty,” it added.
