Manila: Following the 25-basis-point reduction in the Bangko Sentral ng Pilipinas' (BSP) key rates last week, a Fitch Solutions Company unit forecasts an additional cut in December, and more in 2026, to support the domestic economy. With the rate reduction last Oct. 9, the BSP's target reverse repurchase (RRP) rate is now at 4.75 percent, reduced by a total of 175 basis points since 2024, with the 100 basis points in the first nine months of this year alone.

According to Philippines News Agency, BMI has maintained its forecast of 50 basis points in cuts in 2026, given the softening inflation. Lower interest rates make borrowing costs cheaper, encouraging lending and boosting economic activity and domestic growth.

Last September, the rate of price increases accelerated to 1.7 percent from the previous month's 1.5 percent, due to the impact of weather disturbances on food prices. Despite the uptick, average inflation in the first nine months of this year stood at 1.7 percent, which is below the central bank's target range of 2 to 4 percent.

In its report, BMI cited a 'more dovish tone' following the policy rate cut announcement, highlighting BSP Governor Eli Remolona's statement on having the 'scope for a more accommodative monetary policy stance' and the 'favorable inflation outlook and moderating domestic demand.' BMI now expects BSP to cut by 25 basis points at its final meeting in December 2025 to 4.50 percent, with another 50 basis points cut in 2026.

BMI forecasts domestic growth of around 5.4 percent this year, which is below the economic manager's target of 5.5 percent to 6.5 percent. The report also noted risks such as volatile business sentiment due to investigations into the government's flood control projects, a decline in the Philippine Stock Exchange index (PSEi), and a slowdown in merchandise exports. Exports rose by 4.6 percent on an annual basis last August, down from 17.6 percent in the previous month, partly attributed to the impact of US tariff policies.