A SLOW resolution to the corruption scandal engulfing the country’s infrastructure sector may prompt the Bangko Sentral ng Pilipinas (BSP) to deliver additional policy rate cuts next year, according to Japanese think tank Nomura.
‘In terms of timing, we still pencil in a 25bp cut at BSP’s next meeting in December and another 25bp in Q1 2026 [i.e., a more frontloaded trajectory], as the corruption scandal is hitting the growth outlook materially and the widening output gap is likely to reinforce BSP’s dovish stance, which recently emphasized the need to turn more accommodative to boost domestic demand after the corruption scandal,’ Nomura said in its latest brief.
The Japan-based think tank said, however, that at this stage, it sees BSP sticking to 25bp increments as opposed to delivering 50bp in one go, given ‘currency weakness.’
Nomura also took into account its view of a Fed pause in December.
‘Still, we continue to see a risk of BSP delivering additional policy rate cuts next year, if the more ‘severe scenario’ materializes, including a delay in the enactment of the 2026 budget and/or a slow resolution to the scandal,’ Nomura also underscored.
Apart from this, the think tank said a ‘necessary condition’ for additional BSP cuts is (consumer price index) CPI inflation remaining within the BSP’s 2 to 4 percent target, ‘which we expect to be the case in coming months.’
In 2026, Nomura said it forecasts average CPI inflation of 2.8 percent, still below BSP’s latest forecast of 3.1 percent and well within its 2 to 4 percent target.
As for the think tank’s take on the Philippine economy’s growth, it pointed out that it is maintaining its GDP
growth forecast at 4.7 percent, which represents a ‘sharp’ slowdown from 5.7 percent in 2024 and would be the lowest reading since the pandemic.
‘We believe the drag from the graft scandal in Q3 is just the start, with fiscal spending likely to worsen in the next 3-4 months,’ said Nomura.
In addition, the think tank noted it continues to incorporate some ‘spillovers’ on other components of domestic demand, broadening from household consumption to private investment spending.
‘Our forecasts also continue to take into account the impact of the US tariffs, which pose significant headwinds to goods exports,’ Nomura noted.