AS expected, monetary authorities on Thursday cut key interest rates by another 25 basis points to support economic growth.
The rate cut lowered the Bangko Sentral ng Pilipinas’ (BSP) benchmark rate to 4.25 percent. Those for its overnight deposit and lending facilities were trimmed to 3.75 percent and 4.75 percent, respectively.
BSP Governor Eli Remolona Jr. said in a briefing that they “will continue to be vigilant and guided by incoming information, specifically data on inflation.”
“We’re now in a situation where it’s more conditional on what happens to confidence and growth because in December, we were more confident that confidence will return pretty soon,” he said.
“Now, we give a bigger weight to confidence, and we give a bigger weight to how soon it will come back,” Remolona added.
The BSP chief stressed that if confidence returns pretty soon, within a few months, “then we won’t need further cuts.”
He added that economic growth has undershot their expectations due to weaker domestic demand.
“Latest indicators point to a recovery in the second half of the year, but growth will depend largely on how quickly confidence recovers,” Remolona said.
Gross domestic product growth markedly slowed to 4.4 percent last year, down from 5.7 percent in the previous year. The government also attributed the slowdown to the negative sentiment caused by the flood control corruption scandal last year, slashing capital formation to -10.9 percent in the fourth quarter, from -2.8 percent in the previous quarter. It also contracted to 2.1 percent in 2025 from the 7.7-percent growth in 2024.
Remolona said they still expect growth below the government’s 5.5- to 6.5-percent target this year at 4.6 percent while a gradual recovery next year to 5.9 percent is seen. This is also below the central bank’s previous expectation of 5.4 percent and 6.2 percent for this year and next year, respectively.
“We have been data-driven, but we haven’t really taken seriously data on confidence because it wasn’t so important in the past few years,” Remolona said.
“And so we’re data-driven, but we’re also gathering more types of data that will help us understand what’s going on at the moment,” he added.
The Monetary Board raised its inflation forecast to 3.6 percent this year from the previous 3.2 percent. They now expect inflation to decline to 3.2 percent next year, higher than the previous assumption of 3.0 percent.
“The outlook for inflation remains manageable,” Remolona said. “However, forecasts have risen slightly for 2026 due mainly to supply side pressures, which are likely to be temporary.”
“Nevertheless, inflation expectations remain firmly anchored, and inflation is seen to return close to the 3-percent target by 2027,” he added.