‘BSP rate cut looms as economy slows’

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February 9, 2026 | 12:00am

Despite inflation uptick in January

MANILA, Philippines —  The Bangko Sentral ng Pilipinas (BSP) is still expected to press ahead with monetary easing despite a surprise pickup in January inflation, with economists flagging slowing growth and weakening domestic demand as the bigger policy concern in the months ahead. HSBC ASEAN economist Aris Dacanay said headline inflation’s return to the BSP’s target band complicates the near-term policy outlook, but is unlikely to derail an anticipated rate cut.

“After 10 months of floating below the BSP’s two to four percent target band, January headline inflation surprised to the upside, accelerating to two percent year-on-year,” Dacanay said, noting this was above market expectations.

The January print marked the first time in 11 months that inflation landed within the BSP’s target range. Inflation rose from 1.8 percent in December, driven largely by firmer core inflation, which Dacanay said “potentially complicates the path of monetary easing.”

Price pressures were evident in both non-core and core components. On non-core items, rice price increases were partly offset by lower vegetable prices. Electricity inflation, however, surprised on the upside even as Manila’s grid operator announced a 1.2-percent reduction in power rates in January.

Core inflation was led by sharp increases in water rates and restaurant prices. Water rates rose after regulators allowed concessionaires to recover some capital expenditures related to service improvements, which Dacanay described as “a one-time event” and unlikely to play a major role in policy deliberations.

More surprising was the rise in restaurant prices “even though household consumption likely remained tepid.” Additional price pressures were also seen in recreation, personal care and health, all core inflation components.

“All in all, we think January inflation has made the path to further rate cuts rougher,” Dacanay said.

While growth has slowed to its weakest pace since 2011 outside the pandemic, he said “inflation hasn’t been as benign as warranted over the past two months.”

Still, HSBC expects growth risks to dominate. “We continue to believe that one quarter-point rate cut to 4.25 percent is still in the pipeline, with growth concerns eventually outweighing inflation,” Dacanay said.

“If the BSP were to decide to pause its easing cycle, we think it would only be a postponement of easing, not a complete derailment,” he added.

Metropolitan Bank & Trust Co. (Metrobank) echoed the same view, saying that inflation remaining within target keeps the door open for further rate cuts this year.

“While inflation is moving higher from recent lows, it remains well-anchored within the central bank’s target,” Metrobank said. “This gives policymakers room to continue supporting growth, even as demand-side pressures gradually build.”

For 2026, Metrobank maintained its inflation forecast of 3.3 percent, citing low base effects and recovering demand in the second half, partly offset by softer consumption and supply-side measures such as the rice import liberalization. It expects cumulative rate cuts of 50 basis points this year, bringing the BSP’s reverse repurchase rate to four percent by end-2026.

Growth concerns were likewise underscored by Bank of the Philippine Islands lead economist Jun Neri, who said the economy ended 2025 on a weak footing, raising the likelihood of further policy easing.

Gross domestic product (GDP) grew by just three percent in the fourth quarter, pulling full-year growth to 4.4 percent. Neri attributed the slowdown largely to a collapse in construction activity, with government construction spending plunging by 42 percent in the fourth quarter amid investigations into flood control projects.

Weakness also spread to consumer spending, manufacturing and electricity output, pointing to what Neri described as the economy’s “limited and highly concentrated sources of growth.”

“The weak GDP print has increased the probability of a rate cut at the BSP’s next policy meeting,” Neri said. With growth expected to remain soft in the first half of 2026 and inflation seen staying within target, “another cut could follow after a potential move in February.”

Taken together, analysts see the BSP staying on an easing path, albeit more cautiously, as it weighs emerging price pressures against an economy struggling to regain momentum.