The research arm of Metropolitan Bank & Trust Co. (Metrobank) expects the Philippine economy to undergo a gradual recovery in 2026 as easing inflation and a more accommodative monetary policy landscape offset the lingering impact of a volatile 2025.
The bank projected a more constructive backdrop for the year ahead following a period of market jitters and domestic fiscal hurdles.
While the local economy faced significant headwinds last year, including a sharp slowdown in private consumption and allegations of government corruption, Metrobank analysts see a path toward stabilization as both global and domestic conditions improve.
The Bangko Sentral ng Pilipinas is expected to continue its easing cycle in 2026 by delivering a cumulative 50-basis-point reduction to the policy rate, it said. This would bring the target reverse repurchase rate to a terminal rate of 4.0 percent by the end of the year.
Metrobank said the BSP has room to maneuver because inflation settled below the 2.0 percent to 4.0 percent target range last year, providing the necessary leeway to support soft economic activity.
It said that pn the global front, the US Federal Reserve is anticipated to be even more aggressive with its easing. Metrobank forecasts a 100-basis-point reduction in the Fed Funds Rate, bringing it to a range of 2.50 to 2.75 percent by year-end.
The shift is expected as a more dovish Federal Open Market Committee, potentially led by a new governor replacing Jerome Powell, prioritizes labor market support over strictly hitting inflation targets.
Despite these tailwinds, the Philippine peso is expected to remain under pressure. Metrobank shifted its outlook for the USD/PHP exchange rate to the upside, citing a stronger dollar and weakened investor sentiment.
Although resilient exports may help narrow the current account deficit, the bank expects a stronger US economy to weigh on the peso, offsetting the gains from a wider interest rate differential between the two nations.
Domestic growth is expected to pick up as government spending recovers from a previous fiscal freeze. While the third-quarter GDP growth was weaker than anticipated, analysts expect private consumption to improve as the government increases direct cash transfers to households.
Metrobank warned that high consumer debt levels and ongoing controversies within the government could cap these gains.
Inflation is projected to rise to 3.3 percent in 2026 from an estimated 1.7 percent in 2025. This will likely be driven by base effects and a pickup in household consumption as the lagged impact of previous monetary easing takes hold.
Higher import costs resulting from US tariffs and a weaker peso may also contribute to upward price pressure, it said.
The bank said the Philippine economy is better positioned to absorb shocks in 2026 compared with the previous year. Success will depend on consistent policy support and the effective implementation of reforms to restore market confidence, it said.
