The Bangko Sentral ng Pilipinas (BSP) could further ease its monetary policy with a 50-basis-point rate cuts in the first quarter of 2026 as inflation remains manageable and growth risks tilt to the downside, the International Monetary Fund (IMF) said.
The IMF said in its December country report an accommodative stance is appropriate given that headline inflation is below the midpoint of the target band, and a negative output gap is expected to emerge in 2025.
It said the projected reduction, combined with inflation returning to the midpoint of the target range in 2026, would likely bring the real interest rate toward the lower bound of the estimated 2 percent natural rate.
Despite the outlook for easing, the IMF said monetary policy should remain guided by incoming data on the inflation outlook. Uncertainties persist regarding the output gap, the natural rate and two-sided inflation risks.
It said BSP officials agreed that uncertainty surrounding these economic indicators calls for a data-dependent approach. The BSP noted it continues to evaluate its estimates and remains attentive to emerging risks.
Authorities also agreed to accommodate temporary increases in inflation while remaining cautious about anchoring expectations, particularly when facing large climate-related shocks.
While BSP has not yet formally modeled policy options specifically for weather shocks, it reiterated efforts to incorporate broader climate considerations into its analysis.
The BSP Monetary Board reduced key policy rates by 25 basis points to 4.50 percent in its Dec. 11 meeting, citing sluggish growth and a weak economic outlook.
The BSP also revised its inflation expectations to 1.6 percent for the current year and 3.2 percent for 2026.
