SUBDUED economic growth, weak business confidence and external pressures are complicating the case for continued monetary easing and a former Bangko Sentral ng Pilipinas (BSP) official said a pause could follow the rate cut earlier this month.
“The case for a pause rests not on theory but on sequencing and signaling,” GlobalSource Partners economist and former BSP deputy governor Diwa Guinigundo said.
“Inflation has stabilized, but growth weakness is increasingly shaped by confidence and institutional factors that interest rates alone cannot fix,” he added.
The BSP’s policymaking Monetary Board earlier this month lowered the benchmark overnight reverse repurchase (RRP) rate by another 25 basis points to 4.50 percent. Some analysts expect another cut to be announced during the first policy meeting for 2026 in February.
Guinigundo said a pause would not mean a return to tight monetary policy, noting that “in the current environment, a steady hand may be more effective than additional cuts.”
“A pause allows the BSP to support the economy while safeguarding credibility, preserving policy space, and ensuring that monetary accommodation is not misread by markets.”
Guinigundo added that “sometimes, the most effective policy signal is not movement but measured restraint.”
With the fiscal backdrop also complicating the outlook, he warned that rate cuts could be perceived as an attempt to offset fiscal or institutional weaknesses.
“Monetary easing cannot substitute for fiscal credibility,” Guinigundo said.
External considerations could also weigh on the BSP’s decision-making and Guinigundo noted that the peso had already weakened beyond P59 to the dollar, reflecting structural pressures such as a wide current account deficit, portfolio outflows and softer foreign exchange inflows.
“Political and fiscal uncertainty can amplify these pressures by affecting risk perception,” he said.
“Additional easing could reinforce depreciation pressures, particularly if markets perceive that domestic risks are being discounted,” Guinigundo added.
“This is precisely the type of scenario [BSP] Governor [Eli] Remolona [Jr.] has cautioned against in his recent remarks, underscoring the need to preserve optionality.”
Source: BSP seen pausing
