BSP Rate-Cut Pause Extended Through 2026 Amid Inflation Fears

Foreign banks are adopting a more hawkish outlook on Philippine monetary policy, with some analysts now forecasting that the central bank will hold interest rates steady through 2026 to combat persistent inflationary pressures. Singapore-based Oversea-Chinese Banking Corp. Ltd. (OCBC) expects the Bangko Sentral ng Pilipinas (BSP) to keep the current benchmark rate untouched through the year, partly due to near-term risks to price movements. Inflation averaged 1.7 percent in 2025 after price hikes surged to a nine-month high in December 2025. This prompted OCBC to raise its inflation forecast to an average of 2.5 percent in 2026, consistent with rising inflation expectations over the next 12 months. “While this is still comfortably within BSP’s inflation target range, there are some near-term risks to inflation stemming mainly from food prices on account of weather disruptions,” OCBC analysts wrote in a report published last week. Meanwhile, MUFG Bank, Ltd. has a relatively less hawkish stance on the central bank’s policy direction, as it expects the policy-setting Monetary Board (MB) to deliver its first and final quarter-point cut this year. To recall, the BSP decided to reduce the key policy rate by 25 basis points (bps) to 4.5 percent in December 2025—two percentage points (ppt) below the 6.5 percent peak prior to the easing cycle in August 2024. According to the BSP, the ongoing monetary policy easing is expected to support the crestfallen economy, which has been hit by a spending slump and dampened investor confidence. For the Japanese financial giant, the central bank’s latest signal for continued easing this year would “act as a drag on the Philippine peso,” which has been on a losing streak in recent weeks. A combination of domestic and global factors hurt the peso further last Thursday, sending it to a fresh record low of ₱59.46 per dollar, down from its previous all-time low of ₱59.44 reached a day earlier. MUFG expects the local currency to temporarily gain footing against the US dollar at ₱58.8 in the first quarter, but slip gradually again to ₱59 in the second quarter, and further to ₱59.5 by the end of the year.