Inflation risks may limit BSP easing

EMERGING RISKS to inflation may limit the Philippine central bank's ability to ease further in 2026 despite an expected economic slowdown, analysts said.

- By Katherine K. Chan

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said another 25-basis-point (bp) cut signaled by the central bank for 2026 would not suffice to spur the economy.

"A final 25-bp rate cut would help at the margin, but it may not be enough on its own to materially lift growth if fourth-quarter (growth) comes in around 3.8%," he told BusinessWorld in a Viber message.

Last week, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said gross domestic product (GDP) growth in the fourth quarter might settle at 3.8%, easing from 4% in the third quarter.

If realized, it would be the slowest growth rate since 3% in the third quarter of 2011 and bring full-year expansion to 4.7%, under the government's 5.5-6.5% target.

However, Mr. Rivera said the central bank's current easing cycle will likely end soon as food prices and peso's weakness pose inflationary risks.

"As for easing space, the BSP likely has limited room left," he said. "With growth projected to stay below target but inflation risks still present (from food prices and the (peso's) depreciation), BSP must balance support for growth with price and financial stability."

ANZ Research Chief Economist for Southeast Asia and India Sanjay Mathur and economist Arindam Chakraborty noted that the peso's recent performance against the dollar has not affected inflation, amplifying calls for another 25-bp cut in February.