THE Bangko Sentral ng Pilipinas (BSP) lowered its benchmark interest rate by 25 basis points to five percent on Thursday, Aug. 28, 2025, citing steady inflation expectations and the need to support economic activity.
The rates on the overnight deposit and lending facilities were also reduced to 4.5 percent and 5.5 percent, respectively.
The Monetary Board said its inflation outlook remains broadly stable, with forecasts at 1.7 percent for 2025, 3.3 percent for 2026, and 3.4 percent for 2027. While expectations are well anchored, it warned that possible electricity rate hikes and higher rice tariffs could add pressure to consumer prices in the coming years.
“Domestic demand has remained firm, but global risks — particularly the impact of US trade and investment policies — continue to weigh on the economic outlook,” the BSP said in a statement, noting that it will closely monitor emerging risks and adjust monetary settings as needed. “The BSP will safeguard price stability while ensuring policies support sustainable growth and employment.”
Analysts said BSP moves signal the start of a possible easing cycle that could help revive lending and investment.
Marco Miguel Javier, vice president for Economics and Market Research at BPI, said the BSP now has space to cut rates further this year as inflation remains manageable.
“We see scope for rate cuts of around 50 basis points in 2025,” Javier said at the Mandaue Business Month Summit on Wednesday, Aug. 27. “Easing rates would help lower the cost of credit and encourage fresh lending, particularly in real estate, retail and automotive.”
Impact of lower borrowing cost
He added that lower borrowing costs could unlock consumer demand for housing and cars while improving the business case for developers. Investment activity, particularly in construction, remains 12 percent below pre-pandemic levels, and Javier noted that cheaper financing could help narrow this gap by encouraging developers, manufacturers and logistics players to expand capacity.
Still, he cautioned that rate cuts alone will not shield the country from external headwinds.
“The Philippines is more insulated than other Asian economies from trade shocks, but the challenge is making sure private investment catches up,” he said. Risks from a potential US slowdown, tariff-related trade disruptions and supply chain bottlenecks could temper growth momentum.
Javier also flagged the need for prudence among banks, with non-performing loans at 3.34 percent.
“Cheaper loans will benefit borrowers, but banks must balance growth with credit quality,” he said.
“Ultimately, the BSP’s easing cycle should be seen as an opportunity,” Javier added. “It is about creating conditions that support sustainable growth, not just short-term consumption.” / KOC