Global research firm Oxford Economics and US bank Citi expect another interest rate cut by the Bangko Sentral ng Pilipinas (BSP) in the fourth quarter of 2025, with a similar adjustment possible in the first quarter of 2026.
The forecasts follow the BSP’s decision on Thursday to lower its overnight borrowing rate by 25 basis points to 5 percent, its third consecutive cut this year, bringing the cumulative reduction to 75 bps.
The BSP said it was committed to bolstering growth amid low inflationary pressures. The country’s gross domestic product (GDP) expanded by 5.5 percent in the second quarter, a slight increase from 5.4 percent in the first quarter, but at the low end of the government’s 2025 growth target of 5.5 percent to 6.5 percent.
“The BSP remains cautious about the risks from the U.S. tariff hikes, which could exert downside risks on trade and domestic investment,” Oxford Economics said in a note. “To achieve the low end of the growth target, growth would have to accelerate to 5.6 percent year-on-year in the second half, emphasizing the necessity for more accommodative monetary policy to support growth.”
Headline inflation eased to 0.9 percent in July from 1.4 percent in June, falling below the BSP’s 2 percent to 4 percent target range and marking its lowest level since November 2019.
“With expected softer commodity prices – we forecast Brent crude to drop to $65 per barrel by year-end – inflationary pressures are low,” Oxford Economics said. “This aligns with the BSP’s projection: BSP now expects the inflation rate to be 1.7 percent for 2025, a slight upward adjustment from 1.6 percent prior. Therefore, with subdued inflation, the central bank can maintain an easing bias.”
Oxford Economics also noted the peso-dollar exchange rate has been volatile and under renewed depreciation pressure since the end of May, depreciating by 2.7 percent against the greenback since then.
“While BSP doesn’t target the exchange rate explicitly, the pass-through effect of a weaker peso on inflation remains a concern. However, given the U.S. Fed is expected to cut its rate in September, earlier than our previous forecast, this should alleviate some downward pressure on the peso,” it said. “We believe BSP will adopt a cautious approach while retaining an easing bias. One more 25bps reduction to 4.75 percent is likely before the year-end.”
Meanwhile, Citi said the BSP’s latest statement was “notably less dovish,” reiterating upside risks to inflation and appearing more confident on growth. The previous guidance on the need for a more accommodative monetary policy stance was omitted.
“For now, we maintain our call of 25 bps each in October 2025 and February 2026 assuming a growth slowdown in the second half of 2025,” the US bank said. “But we now see a significant risk that the October 2025 cut gets pushed back to December 2025, should BSP stay concerned about tariff-related inflation pressures on rice and electricity.”
“On growth, BSP was slightly more confident vs. June—It noted that domestic demand has ‘held firm,’ even as activity could be ‘tempered’ by external headwinds from U.S. trade policies,” Citi said. “This is marginally less dovish than its Jun assessment that the deceleration in global economic activity would lead to slower growth in the Philippines.”
Citi also said the latest BSP statement was “clearly less dovish in forward guidance,” with policy rates close to their “goldilocks” level. Future cuts were not ruled out, but would be “data dependent.”
“While leaving open the possibility of another cut, the hurdle appears higher now and will be more data-dependent, with BSP likely more sensitive to downside surprises to incoming growth vs inflation data, given aforementioned concerns on upside risks to inflation,” it said.
“We maintain expectation for 25bps cuts each in October 2025 and February 2026 for now… Our call is predicated on our forecasts for monthly inflation prints to remain below the floor of BSP’s 2 percent to 4 percent target range until February 2026, as well as our growth forecast of 5.3 percent in both 2025 and 2026, lower than the official growth target of 5.5 percent to 6.5 percent,” Citi said.
