PROJECTIONS of within-target inflation and weaker economic growth this year and the next assume no further cuts to interest rate or bank reserve requirements, the Bangko Sentral ng Pilipinas (BSP) said in its latest monetary policy report.
The December edition, released on Friday, reiterated forecasts of 3.2 percent and 3.0 percent inflation for 2026 and 2027, respectively, on expectations of lower oil prices, the impact of which will be offset by the lagged impact of prior rate cuts in August and October and a weaker peso.
Economic growth, meanwhile, “is projected to be significantly weaker, as adverse business sentiment weighs on economic activity.” No figures were provided and the BSP said the forecast for 2025 had been lowered to reflect the third quarter’s market slowdown, while the outlook for this year was also cut with an investment slowdown seen continuing the first half.
A slight rebound is expected in 2027, with the delayed impact of rate cuts providing support, but continued uncertainty over global economic policies will again pose a downside risk, the central bank said.
Earlier this week, BSP Governor Eli Remolona said that 2025 growth could have slowed to 4.6 percent, from 5.7 percent last year, before recovering to 5.6 percent this year and 6.0-5.2 percent in 2027.
The output gap — the difference between actual and potential output — was said to have become “more negative” compared to the August outlook due to governance issues that have dampened investor confidence. The gap will remain negative and gradually narrow to a near neutral level by the end of 2027, the BSP said.
Potential output growth will moderate in the near term, the central bank continued, again due to private investment being affected by weak economic sentiment and compounded by subdued public spending in the wake of a massive corruption scandal.
“Nonetheless, rising real wage and household incomes could support consumption, while a gradual recovery in investment activity and infrastructure spending is expected to underpin overall demand beginning 2027,” the BSP said.
These central projections, the central bank said “assume no further adjustments to either the policy interest rate or the reserve requirement ratio over the forecast horizon.”
Assumed minimum wage hikes of 5.6 percent for this year and the next, meanwhile, were said to be consistent with historical adjustments beginning 2015.
The projections are also aligned with the government’s fiscal deficit targets as of June last year, and legislated tax measures, including annual “sin” tax hikes, were also factored in, the central bank said.
The BSP has cut key interest rates by 200 basis points since August last year as an inflation surge ended, the last being a 25-basis point reduction in December.
In the December report, the central bank said that the policymaking Monetary Board “views the current monetary policy easing cycle as nearing its end.”
Remolona, who last month said the December cut could be the last, this week said the continued below-target growth could give the BSP room to deliver two rate cuts this year.