Rate cut pause may boost economy – GlobalSource

December 25, 2025 | 12:00am

MANILA, Philippines — A pause in further monetary policy easing may be beneficial for the economy now as it navigates governance issues related to infrastructure projects, New York-based think tank GlobalSource Partners Inc. said.

In a report, GlobalSource country analysts Diwa Guinigundo and Wilhelmina Mañalac said a pause in further rate cuts might be strategic for the economy under present conditions.

While the combination of low inflation and slowing growth support the case for further rate cuts under normal conditions, the analysts said it is important to consider the reasons behind the current slowdown and how investors and businesses react to policy decisions.

“In the current environment, a steady hand may be more effective than additional cuts,” the analysts said.

At its last policy meeting for the year, the Monetary Board lowered the benchmark interest rate by 25 basis points to 4.50 percent and signaled that the easing cycle may end soon as governance issues and global trade policy uncertainty cloud the country’s growth outlook.

Inflation slowed to 1.5 percent in November, bringing the year-to-date average to 1.6 percent, below the government’s two to four percent target range.

Economic growth slowed to a four-year low of four percent in the third quarter amid corruption issues that led to a contraction in infrastructure spending and weighed on consumer and investor confidence.

This brought average growth in the January to September period to five percent, below the government’s 5.5 to 6.5 percent growth target for the year.

A recent survey from the Bangko Sentral ng Pilipinas (BSP) also showed that business sentiment weakened despite easier financial conditions.

“In such an environment, a rate cut may not be interpreted as growth support. Instead, it risks being read as a response to deteriorating conditions - economic or political, thereby diluting its intended signaling effect,” Guinigundo and Mañalac said.

They said the peso’s depreciation beyond 59 to $1 also reflects both economic fundamentals and market sentiment.

As such, lowering interest rates may lead to a weaker peso, especially if investors perceive that domestic risks are being ignored.

For Guinigundo and Mañalac, a pause in monetary easing will allow the BSP to assess whether the initial rate cut is sufficient to support demand without hurting confidence and weakening the peso.

Holding rates steady after an initial cut also shows how BSP’s decisions are guided by evolving data and risks.

“A pause allows the BSP to support the economy while safeguarding credibility, preserving policy space and ensuring that monetary accommodation is not misread by markets,” Guinigundo and Mañalac said.

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