BSP signals easing cycle nearing its end

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January 7, 2026 | 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) signaled that its monetary policy easing cycle is nearing its end as inflation remains subdued and within target, even as it acknowledged that the outlook for domestic growth has weakened further amid governance concerns and uncertainty over global trade policy.

In a statement, the BSP said the inflation outlook remains benign and inflation expectations are well anchored.

“On balance, the Monetary Board views the monetary policy easing cycle as nearing its end. Any further easing is likely to be limited and guided by incoming data,” it said.

Headline inflation settled at 1.8 percent in December 2025, well within the BSP’s forecast range of 1.2 to two percent for the month. This brought the full-year 2025 average to 1.7 percent, below the central bank’s two to four percent target.

BSP Governor Eli Remolona Jr. welcomed the latest inflation print during a press conference organized by the Tuesday Club, his first event of the year, saying that even if inflation went up from November’s 1.5 percent, the December inflation is “reasonably low.”

While inflation remains manageable, the Monetary Board noted that the outlook for domestic economic growth has weakened further, citing continued declines in business sentiment on governance concerns and uncertainty over global trade policy.

Still, the BSP said domestic demand is expected to rebound gradually “as the effects of monetary policy easing works its way through the economy and public spending improves.”

Remolona said the BSP’s growth forecasts stand at 4.6 percent for 2025, 5.4 percent for 2026 and six percent for 2027.

“The 5.4 percent growth, I think, is pretty good. I think we’ll make six percent in 2027. We’ll make sure the inflation continues to remain low and manageable within our target range,” he said.

On the policy outlook, Remolona said the BSP is already very close to where it wants to be in terms of the policy rate.

“There’s a chance that we may cut (interest rates) some more. But there’s also a chance that we may not move at all. But it’s almost unthinkable to raise the policy rate at this point.”

Asked whether the BSP could deliver one or two more rate cuts this year, he reiterated that future policy decisions would remain guided by incoming data and evolving risks to the inflation outlook.

“But for now, it’s either we don’t move or we cut. Those are the likely scenarios. It looks like either no cut or one more time. Cutting rates two more times means that things are worse than we thought. That would require a bad surprise in the data,” he said.

Remolona said a “bad surprise” would be a much weaker growth outturn than expected.

“We’re saying that 2026 growth will be at 5.4 percent. If it goes below five percent, I think there’s grounds for one more cut beyond the 25 basis points that’s already priced in,” he said.

The Monetary Board reduced the country’s key interest rate by 25 basis points to 4.50 percent at its December meeting last year. This marked the latest move in the BSP’s easing cycle, which began in August 2025.

In total, the central bank has cut borrowing costs by 200 basis points, reflecting its assessment that inflation risks have become more manageable while downside risks to growth persist.