THE country’s key policy rate could still be lowered by the Monetary Board in its final rate-setting meeting for this year and through 2026, according to BMI, a Fitch Solutions Company.
In its latest commentary, BMI forecasts a further 25-basis points rate cut in December and 50-basis points more next year.
The Monetary Board, the highest policy-making body of the Bangko Sentral ng Pilipinas (BSP), reduced the key policy rate by 25 basis points to 4.75 percent, defying market expectations of a pause.
BMI said the BSP’s dovish tone signaled that it was poised to ‘frontload easing’ to support the economy, projecting another 25-basis-point cut in December that would bring the policy rate to 4.50 percent by end-2025.
The central bank said in its press release after it delivered a rate cut that it sees a ‘scope for a more accommodative monetary policy stance’ and the ‘favorable inflation outlook and moderating domestic demand provide room to further support economic activity.’
BMI said the ‘downbeat assessment’ of the economy and BSP Governor Eli M. Remolona Jr., alluding to weakening business sentiment due to ‘governance concerns over public infrastructure spending,’ suggests the BSP is coming round to its view of a further rate cut.
BMI added that there are also signs of a slowdown abound, with the Philippine Stock Exchange index (PSEi) recently closing at a near six-month low and slow merchandise export growth.
Moreover, BMI projects inflation to average at 3.5 percent, slightly higher than the BSP’s forecast of 3.1 percent in 2026.
BMI also noted a counterargument that the peso’s recent weakness could prompt the BSP to pause further easing in December, as the currency closed nearly 1 percent lower at P58.44 per US dollar after the BSP’s decision.
BSP’s gross international reserves, at an 11-month high of $108.8 billion, would also provide a sufficient buffer to defend the currency.
Further, BMI pointed out that the US Federal Reserve’s anticipated rate cut in October will widen the interest rate differential between the Philippines and the United States to 75 basis points, before narrowing again in December.
As for 2026, BMI said it maintains expectations of a 50-basis point rate cut, bringing the policy rate down to 4 percent.
‘For one, the US-Philippines trade deal, which leaves 19 percent tariffs on Philippine goods in exchange for none on American ones, will weigh on the trade balance in 2026,’ BMI said.
‘For another, business confidence is likely to remain weak amid graft concerns and unpredictable US trade policy,’ it added.
While further monetary easing could help stimulate demand, BMI said the BSP may ease at a ‘more measured pace’ to allow the effects of earlier cuts to feed through.
Risks to the outlook, BMII added, are tilted toward more rate cuts in 2026 should the corruption scandal spread to other infrastructure projects, dampening business sentiment and widening the output gap.
‘With inflation expectations remaining well anchored, the BSP could prioritize the economy and deliver more policy rate cuts in 2026,’ BMI said.