Policy path hinges on confidence – BSP

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February 21, 2026 | 12:00am

MANILA, Philippines — The path of monetary policy remains uncertain, with future rate adjustments hinging largely on how quickly confidence returns to the economy, according to the Bangko Sentral ng Pilipinas.

BSP Governor Eli Remolona Jr. said that while price pressures remain manageable, the pace of sentiment recovery would determine how much policy space the central bank has.

“We’re going to be focusing on inflation. But there’s a large element of uncertainty that we’re facing,” Remolona said in an interview with CNBC.

The BSP chief acknowledged that authorities were surprised by the weakness of fourth-quarter 2025 growth, which slowed to three percent. This pulled full-year expansion down to 4.4 percent, missing the government’s 5.5 to 6.5 percent target.

Although the BSP earlier slashed its benchmark rate by 25 basis points to 4.25 percent to support growth, bringing cumulative easing since August 2024 to 225 basis points, Remolona stressed that inflation remains the central bank’s primary mandate.

“Inflation is under control, which means we have some leeway to do something about growth,” he said, adding that monetary easing could help support activity and potentially restore sentiment.

“Growth affects confidence and confidence affects growth. Maybe we could do something on the growth side. In the meantime, confidence also depends on resolving governance issues that we’ve been facing,” Remolona said.

According to Remolona, the BSP is tracking a wide range of indicators to assess whether confidence is improving, including market signals and even sentiment analysis of news coverage by using an index developed by the central bank.

The index remains weak but is beginning to show what he described as “green shoots.” The latest policy rate cut, he said, is meant to “water those green shoots.”

Remolona added that the BSP is monitoring the peso, although it is more concerned about sustained swings than daily volatility.

“When the swings are large enough, it becomes inflationary. And so then we may come in. But otherwise, we try to stay out of the market,” he said.

BMI Country Risk & Industry Research said the BSP still has room for one more rate cut this year, but warned that the easing cycle could soon come to an end as inflation risks and currency pressures build.

In a note, BMI said slower growth and benign inflation in the near term could allow the BSP to deliver another 25-basis-point cut at its April 23 policy meeting, which would bring the benchmark rate down to four percent.

The research firm said growth is likely to remain soft in the first half, extending the weak momentum seen in the second half of last year, while subdued demand-side pressures should keep inflation within the lower half of the BSP’s two to four percent target range in the coming months.

However, the April cut may mark the end of the easing cycle, as inflation is expected to pick up later in the year due to fading base effects, higher electricity rates and adjustments in rice tariffs.

Further easing below four percent could also risk additional depreciation pressure on the peso, BMI said, noting that the narrowing interest rate differential with the United States could limit the BSP’s policy flexibility.

BMI expects the peso to weaken gradually toward 59.50 against the dollar by end-2026, even without further easing.

Despite near-term softness, the firm expects growth to improve in the second half as the effects of earlier rate cuts feed through and public spending recovers, bringing economic growth to an average of 5.2 percent in 2026.