The Bangko Sentral ng Pilipinas’ (BSP) monetary easing cycle will help boost consumer spending after officials lowered borrowing costs to address sluggish economic growth, according to Oxford Economics.
The BSP reduced the policy rate by 25 basis points to 4.25 percent on Thursday. This reflects concerns over subdued fourth-quarter gross domestic product growth resulting from weaker domestic demand while inflation remained well contained in January. The policy rate has now been reduced by 150 basis points since the start of 2025.
“Economic growth has undershot the BSP’s expectations due to weaker domestic demand,” Oxford Economics said, adding that a recovery is likely only in the 2nd half of the year and contingent on improving consumer confidence.
Consumption and investments, typically the primary drivers of Philippine growth, expanded at their slowest pace since the pandemic at 3.8 percent and -7.2 percent respectively. Analysts attributed the slump in part to recent corruption scandals.
Oxford Economics expects no further rate cuts in 2026 as inflation is likely to rise toward 3 percent and consumer sentiment gradually recovers.
While the BSP did not signal a clear end to the easing cycle, it cited consumer confidence as a key guiding indicator alongside inflation.
In January, headline inflation rose to an 11-month high of 2.0 percent, re-entering the BSP target range of 2 percent to 4 percent.
The increase was largely led by energy prices due to unfavorable base effects while food inflation eased slightly. Core inflation also picked up to 2.8 percent from 2.4 percent in December.
The BSP expects inflation to remain well-contained and converge toward a 3 percent target by 2027.
Oxford Economics analysts expect inflation to edge higher in the coming months due to base effects and the pass-through of previous rate cuts, reaching approximately 2.5 percent in 2026 and 3.0 percent in 2027.
Despite persistent depreciation pressures in 2025, the peso has recovered to its strongest level since October 2025. The currency was recently trading near 58 per U.S. dollar, supported by a weaker greenback. However, the peso is expected to weaken in the coming quarters as the US dollar recovers, according to Oxford Economics.
The BSP maintained a cautious tone on further easing and noted that future policy moves will be dependent on consumer confidence. Oxford Economics expects that a recovery in sentiment coupled with rising inflation will likely pause the need for further rate reductions.
