The Bangko Sentral ng Pilipinas (BSP) lowered its key policy rate by 25 basis points to 4.50% during its final monetary policy meeting of the year on 11 December 2025, in line with market expectations and forecasts by Maybank Investment Bank (Maybank IB).
The move comes amid weakening business confidence, softening domestic demand, and benign inflation, which continued to trend below the central bank’s target range.
Mild Inflation Gives BSP Room to Ease
Headline inflation rose 1.5% year-on-year in November, bringing the 11-month average to 1.6%—well below the 3.2% recorded in 2024.
The deceleration was largely driven by a steep drop in food prices, particularly rice (–15.4% YoY) and corn (–4.1% YoY), which helped offset higher meat and seafood costs. Transport inflation also picked up due to pricier diesel and a rebound in gasoline prices, despite global crude trading lower at USD63.8 per barrel.
However, a weakening peso and persistent geopolitical tensions kept refined fuel costs elevated, contributing to volatility in the transport component of the Consumer Price Index.
The BSP marginally revised upward its inflation forecast for 2026 to 3.2% and for 2027 to 3.0%.
Growth Outlook Softens on Weaker Business Sentiment
The central bank said domestic economic activity has “weakened further” due to worsening business sentiment, governance concerns, and global trade uncertainties.
Even so, labour market indicators remain resilient, with the unemployment rate averaging 4.2% in the first 10 months of 2025—better than the 5.3% post-pandemic average. Worker remittances also maintained solid momentum, rising 3.2% in the first nine months of the year.
The BSP expects domestic demand to gradually recover as the effects of earlier rate cuts filter through and public spending improves.
Maybank IB Expects Another 50bps Cut in 2026
Maybank IB maintains a view that the central bank will reduce rates further in 2026, projecting a cumulative 50 bps cut that would bring the policy rate to 4.00% by year-end, barring fresh inflationary shocks.
It noted the BSP’s recent removal of references to electricity tariff adjustments and rice import taxes as inflation threats—an indication that these concerns have eased.
Despite ongoing geopolitical risks, external trade vulnerabilities and tariff uncertainties, Maybank IB expects inflation to remain contained at 1.7% in 2025 and 2.2% in 2026, providing room for additional policy easing.
