BSP likely to sustain monetary easing until 2026 

Citi is maintaining its forecast that the Bangko Sentral ng Pilipinas (BSP) will cut policy rates by 75 basis points through the first quarter of 2026, following last week’s 25 basis-point reduction to 5.25 percent, according to a report by Manila Standard.

The global bank said it expects additional 25 bps rate reductions in August, October and early 2026, as part of a shift to a more accommodative monetary stance.

Citi, however, noted several risk scenarios that could change this projection. It said the timing or depth of the final two projected cuts could change depending on incoming economic data, geopolitical developments and global oil prices, all of which could affect inflation and foreign exchange.

Citi’s base case assumes a continued decline in inflation and slower economic activity.

The Bangko Sentral ng Pilipinas earlier slashed its inflation forecast for 2025 to 1.6 percent for this year from 2.4 percent on weaker food inflation and signs of softening global growth.

It noted that the BSP’s inflation outlook already factors in the recent spike in crude oil prices. The central bank uses a $71-per-barrel assumption, slightly above the year-to-date average of $70 but well below 2023’s average of $80.

“Given the flare-up of geopolitical tensions, and should oil prices stay higher than BSP’s expectations, we see some risks of diverging trajectories between core and headline inflation, with slowing growth anchoring core, but higher oil prices pushing up headline CPI,” Citi said.

Citi noted that once oil prices rise to $85 per barrel or higher by end-2025, the BSP’s inflation forecast could be revised by around 30 basis points. While this may not prevent an August cut, it would increase the likelihood that the October and first quarter of 2026 reduction would not happen.

A weaker peso or a shift in US Federal Reserve expectations could also reduce the BSP’s room to ease further, it said.