Remolona sees room for one more rate cut in 2026
Any further rate easing next year—if it comes at all—will likely be limited to a single quarter-point cut, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said, while warning that the economy may finish 2025 on a sour note as a widening corruption probe saps confidence.
Speaking to reporters on Friday, Remolona said the next move of the BSP would “depend on the data”, adding that the central bank would still avoid outsized cuts and off-cycle decisions that may stir market concerns about the economy.
Remolona said the BSP now expects fourth-quarter growth to slow to 3.8 percent, from 4 percent in the previous quarter. Excluding the pandemic slump, that would mark the weakest expansion since the third quarter of 2011, when a sweeping corruption crackdown curbed government spending.
That estimate would also put the average growth this year at 4.7 percent, well below the Marcos administration’s target expansion of between 5.5 and 6.5 percent.
“Our next meeting is in February. So, should we decide to cut again, sure enough it would be done during a regular meeting,” Remolona said.
“If we cut by 50 basis points [in one meeting] or do off-cycle [decisions], it will worsen the loss of confidence. The market would say the BSP is desperate,” he added.
At its final policy meeting for the year, the Monetary Board last Thursday slashed the overnight borrowing rate, guiding bank lending costs by a quarter point 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.
The move was widely expected by the market, including all 13 economists polled by the Inquirer. Remolona said the central bank may be nearing the end of its rate-cutting campaign, adding that this month’s action “may be the last cut”.
Rebound
While he recognized that the rate cuts cannot directly address the ongoing corruption scandal, the BSP chief said the easing moves could help “compensate” for the negative effects of the fallout, which has gutted business and consumer confidence and stalled government spending.
Looking ahead, Remolona said growth may rebound to 5.4 percent in 2026 before recovering to 6 percent in 2027. He also plans to create easier liquidity conditions for the economy, telling ANC television in an interview yesterday that he wants to bring down the reserve requirement ratio of banks to 2 percent from 5 percent “in the next year or so”.
In a commentary, analysts at BMI, a unit of the Fitch Group, said the BSP may cut by another 0.25 percentage point at its next meeting in 2026, citing a “more pessimistic growth outlook” and subdued inflation.
“This provides a ripe environment for BSP to front-load their easing to compensate for government underspending due to the corruption scandal,” they said.
