The Bangko Sentral ng Pilipinas (BSP) may be poised to deliver a critical policy shift when it convenes on February 19, as Metrobank projects a 25-basis-point rate cut to help shore up domestic growth amid cooling economic momentum.
In its latest market outlook published on Wealth Insights, Metrobank forecasts that the Monetary Board will trim the benchmark policy rate by 25 basis points to 4.25 percent, arguing that softening economic activity now outweighs near-term inflation risks.
The call comes after fourth-quarter data revealed a marked slowdown, with gross domestic product expanding by just 3 percent. Full-year growth for 2025 settled at 4.4 percent, below earlier expectations. The deceleration was largely attributed to weaker household consumption and subdued private investment—two pillars that traditionally anchor Philippine economic expansion.
“Household expenditure continues to face headwinds, and this softness in domestic demand strengthens the case for monetary easing,” Metrobank said. “A timely rate cut could provide the necessary support to reinvigorate growth momentum.”
While the bank anticipates economic conditions to gradually improve in the second half of 2026, it believes near-term vulnerabilities warrant a proactive policy response to prevent further loss of traction.
Inflation provides policy breathing room
Inflation dynamics appear to offer the central bank flexibility. Consumer price growth edged up to 2 percent in January from 1.8 percent in December, driven mainly by higher utility costs. Food inflation, however, continued to ease, helping keep overall price pressures contained.
Metrobank expects inflation to drift higher toward the lower end of the BSP’s 3±1 percent target range this year, partly due to base effects from last year’s unusually low readings. The continued inflow of rice imports is also seen as a mitigating factor against sharper food price increases.
“With inflation firmly within the target range, the BSP retains room to recalibrate policy in favor of growth,” the bank noted.
Currency risks in focus
A quarter-point rate cut would narrow the policy rate differential between the Philippines and the United States to around 50 basis points.
While a slimmer interest rate gap could affect portfolio flows and foreign exchange volatility, Metrobank believes that shifts in business and consumer confidence may ultimately play a larger role in determining currency direction than rate spreads alone.
The bank signaled that additional easing in April remains on the table, provided inflation stays manageable. However, sustained upward pressure from rental and utility costs could constrain the scope for further accommodation.
“Monetary policy remains data-dependent,” Metrobank said. “While supporting growth is the immediate priority, the BSP will continue to balance price stability and financial market considerations in the months ahead.”
As policymakers weigh their next move, markets are watching closely. With economic momentum fading but inflation still anchored within target, the window for calibrated easing may be narrow—yet strategically decisive.