Economists are divided on whether the Bangko Sentral ng Pilipinas (BSP) will deliver another rate cut this week or hold fire, as the Monetary Board convenes on Oct. 9 against a backdrop of subdued inflation and still-soft growth momentum.
Union Bank of the Philippines chief economist Ruben Carlo Asuncion expects the Philippine central bank to trim policy rates by 25 basis points (bps).
‘We expect the Monetary Board to cut policy rates by 25 bps on Oct. 9 to preempt downside risks to growth amid benign inflation,’ Asuncion said.
‘Looking ahead, we see a cumulative 50 to 75 bps easing through early 2026, with the policy rate likely bottoming out around 4.50 to 4.75 percent, assuming no major supply shocks,’ Asuncion added.
Reyes Tacandong and Co. senior adviser Jonathan Ravelas shared a similar view, saying the BSP has room to ease further to support economic activity.
Ravelas also projected a 25-basis-point reduction this week.
With the policy rate currently at five percent after a series of cuts totaling 150 bps since August 2024, the Oct. 9 decision is shaping up as a key test of how much room the central bank still has to ease without unsettling market expectations or external stability.
In contrast, Metropolitan Bank and Trust Co. chief economist Nicholas Mapa believes that the Monetary Board will stand pat for now, preferring to wait for more clarity.
‘The BSP is tipped to keep rates untouched, awaiting moves by the Federal Reserve and the release of third-quarter gross domestic product (GDP) data,’ Mapa said.
‘We expect growth to remain challenged in the third quarter, which could keep the door open for a potential rate cut by the end of the year,’ Mapa explained.
Jun Neri, lead economist at Bank of the Philippine Islands, said the BSP could still cut rates this week, but sees a higher chance of easing by December once third-quarter GDP figures, due in November, confirm demand softness.
‘While BSP Governor Eli Remolona Jr. has signaled the possibility of a cut next week if economic weakness persists, he also earlier described the current policy level as a ‘Goldilocks’ rate, suggesting the BSP may wait for clearer evidence before acting,’ Neri said.
Remolona earlier said that the BSP’s easing cycle may soon be winding down as borrowing costs are now at a level that is ‘just right’ for a stable and growing economy, meaning the rates are neither too high to choke growth nor too low to fuel inflation.
While rates are already near neutral and inflation is projected to converge to three percent by 2026 to 2027, Neri noted that the scope for further easing is limited. But the BSP could still deliver two more rate cuts if the economy continues to operate below potential.
The central bank could also move in tandem with the US Federal Reserves, especially if markets expect aggressive cuts after Fed Chair Jerome Powell’s term ends in May 2026, he said.
‘However, this raises the risk of policy overshooting, which could force a reversal if inflation pressures re-emerge when base effects turn unfavorable again in 2026, while also reducing the likelihood of the promised reserve requirement cuts next year to align with the region,’ Neri said.
‘External dynamics will also weigh heavily, with stagflation risks in the US adding further uncertainty around the timing and scale of Fed moves,’ Neri added.
The debate underscores the delicate balancing act for the BSP as it weighs the need to bolster growth against risks of moving too quickly while inflation remains subdued.
The central bank started its easing cycle in August last year, trimming rates by 25 basis points, followed by two more reductions in November and December 2024. It resumed cutting in April, June and August this year as inflation stabilized and economic growth showed resilience.
After the Oct. 9 policy meeting, the Monetary Board will have its final review this year on Dec. 11.