THE Bangko Sentral ng Pilipinas (BSP) will likely further reduce policy rates until next year, as inflation is expected to remain within target, BMI, a unit of Fitch Solutions, said.
In a report released Monday, BMI said it is projecting the BSP to hold policy rates steady during its next meeting in October but will deliver another 25 basis points (bps) rate cut in December.
“While a sharp fall in rice prices drove headline inflation down from 1.4 percent y-o-y (year-on-year) in June to 0.9 percent in July, we expect near-term price pressures from the rice import ban—slated to begin in September for two months—and higher electricity prices,” BMI said.
“Amid signs of weakening economic growth, BSP Gov. Eli Remolona signaled another 25bps cut to the policy rate before end-2025 during the post-meeting press conference. But he also described the economy as being in a ‘sweet spot’, which we interpret as a preference to stand pat at the next meeting in October,” it added.
BMI, however, noted that easing inflationary pressure towards the end of 2025 will provide the central bank with the space to cut.
Inflation is expected to settle at 1.6 percent this year, which is well within the government’s two to four percent range.
For 2026, BMI expects the BSP to further reduce rates by another 50 basis points, bringing the policy rate to 4.25 percent.
According to BMI, economic growth, which is forecast to hit 5.2 percent in 2026, “suggests a greater need for the central bank to cut rates to further stimulate the economy.”
“We forecast a slight weakening in the peso against the greenback from an average of P58 per USD in 2025 to P58.50/USD in 2026, which should help insulate the economy from import-induced inflation. Even though potential electricity rate adjustments and higher rice tariffs may exert inflationary pressures, we believe weaker growth momentum will contain overall upward pressure on prices,” it said.
Inflation is projected to average 2.5 percent, which is still within the central bank’s target range. / PNA