More BSP rate cuts seen as price pressures curbed

Upgrade to High-Speed Internet for only ₱1499/month!

Enjoy up to 100 Mbps fiber broadband, perfect for browsing, streaming, and gaming.

Visit Suniway.ph to learn

January 12, 2026 | 12:00am

MANILA, Philippines — Inflation may have surprised on the upside in December, but economists said the Bangko Sentral ng Pilipinas (BSP) still has room to continue easing this year, with some even seeing deeper rate cuts ahead as growth risks mount and price pressures remain largely contained.

In its Asia economic monthly report, Nomura Global Markets Research said the Philippine central bank may deliver two 25-basis-point cuts this year, one in each of the Monetary Board’s meetings in February and April.

If realized, this could bring the country’s key policy rate down to four percent from 4.50 percent currently and raise the total easing since August 2024 to 250 basis points from 200 bps.

“Our forecast is underpinned by our more cautious view on the growth outlook, which is the overriding policy consideration for BSP. The negative output gap has widened sharply, adding to a benign inflation outlook,” Nomura research analysts Euben Paracuelles and Yiru Chen said.

Headline inflation rose to 1.8 percent year-on-year in December from 1.5 percent in November. This brought average inflation to 1.7 percent for 2025, still below the BSP’s two to four percent target.

Nomura forecasts average inflation of 2.5 percent in 2026, as low oil prices, subdued demand-side pressures and the government’s likely maintenance of supply-side measures would keep prices low.

On growth, Nomura said it expects the economy to expand by only 5.3 percent in 2026 – at the lower end of the government’s revised five to six percent forecast range – from a “sub-par” 4.7 percent in 2025.

“We believe the ‘bad scenario’ continues to play out regarding the impact on growth of the ongoing government corruption scandal via a sharp drop in public sector spending amid increased scrutiny,” the Nomura analysts said.

BPI lead economist Jun Neri said the uptick in December inflation was driven largely by food prices, as favorable base effects from rice began to fade.

Neri said inflation “may continue to climb in the coming months as the year-on-year decline in rice prices gradually fades,” with risks from peso depreciation, possible supply shocks from stronger typhoons and negative sentiment on the currency.

Still, he said inflation “is expected to remain manageable in 2026,” citing the risk of a global oil oversupply that could keep prices stable or lower. BPI expects inflation to average at 3.2 percent in 2026.

“We see the scope for additional rate cuts from the BSP in the coming months given the favorable inflation outlook, with two cuts in the first half of 2026,” Neri said.

However, he added that “we agree with the view that the BSP’s current easing cycle may end this year,” noting that the central bank has already delivered substantial cuts and that “monetary policy operates with a lag.”

“Policy easing has clear benefits, but excessive cuts can become counterproductive as the gains may no longer match the trade-offs,” he said, warning that rates that are too low relative to external fundamentals could raise the risk of peso depreciation and feed back into inflation through higher import costs.

HSBC Global Investment Research ASEAN economist Aris Dacanay said Typhoon Fung-wong (Uwan) in November “might have crippled food supply at a time when demand for food rose due to the holiday season,” pushing up prices despite a 60-day price freeze on basic goods.

“That being said, we do not think the upside surprise in December inflation derails our view that the BSP will likely deepen its easing cycle further,” Dacanay said, adding that food inflation can be managed once supply stabilizes.

HSBC expects the BSP to “trim its policy rate differential with the US Federal Reserve to 50 bps to help support growth,” as “the Philippines’ fiscal engines will likely sputter in 2026 as the government undergoes an extensive corruption investigation.”

Under its baseline, the Fed keeps rates unchanged, leading HSBC to expect “only one more 25-bp rate cut by the BSP in the first quarter of 2026, bringing the policy rate to 4.25 percent,” though it said risks are tilted to the downside.

Taken together, economists said December’s inflation bump does little to change the broader picture: price pressures remain manageable, growth risks are rising and monetary policy is still likely to stay supportive in the months ahead.