BSP chief: Rate cut remains an option

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February 3, 2026 | 12:00am

Flags weaker-than-expected Q4 growth

DUMAGUETE City, Philippines — The Philippine economy likely hit a deeper slowdown than initially thought, with fourth-quarter growth turning out weaker than expected and pushing the Bangko Sentral ng Pilipinas to reassess its outlook for 2026, while keeping the possibility of further interest rate cuts on the table.

BSP Governor Eli Remolona Jr. said the central bank’s earlier projections did not fully capture the extent of the fourth-quarter weakness, raising the possibility of a forecast revision for 2026, although he stressed this was still under review.

“We expect growth to recover by the second half of 2026,” Remolona told reporters on the sidelines of the BSP’s Media Information Session in Dumaguete City.

He added that the BSP was still analyzing the fourth quarter data and assessing why its earlier estimates missed the mark.

The country’s gross domestic product (GDP) grew by just three percent in the fourth quarter of 2025, the lowest level since 2011 excluding the pandemic, bringing average expansion to 4.4 percent for the full year.

Asked if the central bank’s growth forecast could be revised downward, the BSP chief said, “We’re looking to revise that. I hope we don’t revise it. Well, I hope not downwards.”

Remolona acknowledged that economic performance in the final quarter of 2025 was worse than anticipated.

He said the BSP initially thought that the economy would grow by 3.8 percent in the fourth quarter.

“(The data) was even worse than that,” he said. “We kind of made a mistake there.”

The weaker growth outcome has reinforced discussions on possible further policy rate cuts, although Remolona stressed that decisions would remain data-dependent.

“There can be another rate cut, but we’ll see,” he said, noting that the BSP would still examine both demand-side and supply-side factors, as well as incoming inflation and activity data.

He also said that the tools of the central bank operate on the demand side.

“We have to analyze things very carefully. If we can help on the demand side and still keep inflation low, then of course we’ll help,” Remolona said.

Analysts broadly shared the view that the growth disappointment has increased the likelihood of near-term policy easing.

Deutsche Bank Research said Philippine GDP growth slowed to just three percent year on year in the fourth quarter of 2025, well below its 4.1 percent forecast and market expectations of 3.7 percent.

“We think that a February rate cut from the BSP is now almost certainly on the table,” Deutsche Bank said, adding that the likelihood of another cut in the first half of the year has risen given the wider-than-expected negative output gap.

Citi likewise said the fourth quarter slowdown was sharper than expected, driven mainly by continued weakness in public investment following spending bottlenecks last year.

“The sharp growth slowdown increases our conviction for a 25 basis point rate cut in the Feb. 19 meeting,” Citi said, adding that it also sees a risk of another 25-basis-point cut in April if first quarter growth disappoints further.

Citi expects a modest recovery in the first half of 2026 before growth gains traction in the second half. It projects GDP growth to return to the 3.5 to four percent range in the first half and gradually move back toward five percent by the fourth quarter, with full-year 2026 growth seen at 4.5 percent.

Both Deutsche Bank and Citi noted that while easing is likely, risks such as inflation trends, oil prices and the pace of government disbursements will remain key factors shaping the BSP’s policy path in the coming months.