BSP rate cuts likely to continue until 2026 - BMI

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is likely to continue its monetary policy easing until next year on expectations of low inflation and slower economic growth amid concerns about corruption issues and uncertainties related to the United States’ trade policies, according to research and analysis firm BMI.

In a report, the Fitch Solutions unit said the BSP’s move to cut its policy rate by 25 basis points to 4.75 percent was unexpected.

The BSP decided to trim the policy rate further as it sees scope for a more accommodative monetary policy stance, citing a favorable inflation outlook and moderating domestic demand.

“Our takeaway is that the BSP is poised to frontload easing to support the economy. As such, we now expect the BSP to cut by 25 basis points at its final meeting for this year in December to 4.50 percent and by another 50 bps in 2026,” BMI said.

BMI expects inflation to average 1.6 percent this year, slightly lower than the BSP’s 1.7 percent forecast for the year.

For next year, BMI expects inflation to average 3.5 percent, higher than the BSP’s projection of 3.1 percent for 2026.

As of end-September, average inflation stood at 1.7 percent, below the government’s two to four percent target for the year.

BMI also expects Philippine economic growth to average 5.4 percent this year, lower than the government’s 5.5 to 6.5 percent growth target for the year.

The Philippine economy posted average growth of 5.4 percent in the first semester.

For next year, BMI expects the Philippine economy to expand by 5.2 percent, which is below the government’s target of six to seven percent.

BMI expects slower economic growth for next year as the 19 percent tariff imposed by the US on Philippine goods is likely to weigh on the trade balance.

It also expects business confidence to remain weak amid concerns about corruption and the unpredictable US trade policy.

“Risks to our forecast are skewed towards further rate cuts in 2026,” BMI said, noting that the spillover of flood control corruption issues to other infrastructure projects could dampen business sentiment and widen the output gap.

“With inflation expectations remaining well-anchored, the BSP could prioritize the economy and implement more policy rate cuts in 2026,” BMI said.