Introduction to Philippine Monetary Policy
The Philippine central bank, also known as the Bangko Sentral ng Pilipinas (BSP), has been under scrutiny lately due to the country’s persistent inflationary pressures. Foreign banks have been adopting a more hawkish outlook on the BSP’s monetary policy, with some analysts forecasting that interest rates will remain steady through 2026.
Current Economic Situation
The country’s inflation rate averaged 1.7 percent in 2025, with a surge to a nine-month high in December 2025. This has prompted some banks, such as the Singapore-based Oversea-Chinese Banking Corp. Ltd. (OCBC), to raise their inflation forecast to an average of 2.5 percent in 2026. The inflation rate is still within the BSP’s target range, but there are near-term risks to inflation stemming from food prices due to weather disruptions.
Banks’ Forecasts
OCBC expects the BSP to keep the current benchmark rate untouched through the year, while MUFG Bank, Ltd. has a relatively less hawkish stance, expecting the policy-setting Monetary Board (MB) to deliver its first and final quarter-point cut this year. The BSP had previously reduced the key policy rate by 25 basis points (bps) to 4.5 percent in December 2025, as part of its ongoing monetary policy easing to support the country’s economy.
Impact on the Economy
The ongoing monetary policy easing is expected to support the Philippine economy, which has been hit by a spending slump and dampened investor confidence. However, the central bank’s latest signal for continued easing this year is expected to "act as a drag on the Philippine peso," which has been on a losing streak in recent weeks. The peso has reached a fresh record low of 59.46 per dollar, down from its previous all-time low of 59.44 reached a day earlier.
Forecast for the Philippine Peso
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. This forecast is based on a combination of domestic and global factors that are expected to affect the peso’s value.
Conclusion
In conclusion, the Philippine central bank’s monetary policy is under close watch due to the country’s persistent inflationary pressures. Foreign banks have different forecasts for the BSP’s policy direction, with some expecting interest rates to remain steady and others expecting a quarter-point cut. The ongoing monetary policy easing is expected to support the economy, but its impact on the Philippine peso remains uncertain. As the country’s economy continues to evolve, it is essential to monitor the BSP’s policy decisions and their effects on the economy and the peso.
