The Bangko Sentral ng Pilipinas may continue easing its policy settings in the coming months, as analysts said the BSP’s latest surprise rate cut marked a decisive shift toward a more dovish stance amid weakening business sentiment and governance concerns in public spending.
HSBC ASEAN economist Aris Dacanay said the BSP’s move to reduce the policy rate by 25 basis points (bps) to 4.75 percent, its lowest in three years, was unexpected, but ‘even more surprising was the dramatic shift in tone.’
He noted that the BSP’s latest statement acknowledged ‘moderating domestic demand,’ a sharp contrast to its earlier view that demand remained firm.
The central bank attributed this change to weaker business confidence following corruption allegations in government flood control projects.
‘In explaining the change in outlook, the BSP singled out the impact of the flood control corruption allegations on business confidence and expansion plans,’ Dacanay said, citing the Monetary Board’s statement that ‘the favorable inflation outlook and moderating domestic demand provide room to further support economic activity.’
He said this could signal more rate cuts ahead, noting that BSP Governor Eli Remolona Jr. also disclosed that the central bank is reviewing its estimate of the neutral or ‘Goldilocks’ rate, which is now between four and five percent, lower than previously assumed.
‘Though having more room to accommodate a looser policy stance is in line with our view that policy rates could go down to as low as 4.5 percent, we didn’t expect the easing cycle to be this fast, nor did we expect the BSP to shift its tone this abruptly,’ Dacanay said.
HSBC now expects another 25-basis-point cut by December, bringing the policy rate to 4.5 percent by year-end and holding it steady through 2026.
Dacanay said the BSP could even ease more aggressively if growth remains below potential, as public and private infrastructure spending will be critical in determining the pace of recovery.
Meanwhile, BPI lead economist Jun Neri said the BSP’s latest rate cut brings the total reduction to 175 bps since August 2024, ‘one of the most aggressive in the region.’
He noted that the decision reflects a clear departure from the BSP’s August tone, when Remolona described the policy rate as being in a ‘sweet spot’ for both growth and inflation. ‘This stance has now changed significantly,’ Neri said. ‘The BSP now believes there is more room to ease policy than earlier thought.’
Neri said the move appears preemptive, with the BSP acting ahead of potential weakness in economic growth as governance issues weigh on infrastructure spending. He also expects another rate cut in December, followed by further easing in the first half of 2026.
‘We expect the BSP to pause its easing cycle once the policy rate reaches four percent in 2026,’ Neri said, although he cautioned that ‘such aggressive easing could prove to be an overshoot, raising the risk of a sharp policy reversal later on once inflation accelerates.’
Neri projected inflation to hover near two percent for the rest of 2025 before gradually rising to 3.5 percent by mid-2026 as base effects fade.
In a separate commentary, Citi said it expects a 25 bps cut at the last Monetary Board meeting on Dec. 11 followed by another 25 bps cut in February next year, bringing the key rate to 4.25 percent. There is also a risk of another 25 bps cut thereafter.
Citi noted that the BSP is now paying closer attention to sentiment indicators as activity data show signs of strain. Passenger car sales dropped by 23 percent year-on-year in July to August, remittance growth slowed to three percent and investment approvals have declined for three straight quarters.
Meanwhile, government infrastructure and capital outlays fell double digits year-on-year in July and August, reflecting tighter budget controls and slower project implementation following the corruption probe.
‘The BSP’s tone suggests it is prioritizing support for demand while remaining confident that inflation will stay below target through early 2026,’ Citi said.
The bank projects the Philippines to grow by 5.3 percent in both 2025 and 2026, below the official 5.5 to 6.5 percent target of the government.
‘With the Goldilocks rate likely closer to four percent, another 25-basis-point cut remains possible,’ it added.
The BSP has now cut rates seven times since August 2024, totaling 100 basis points last year and 75 basis points so far in 2025.