Fitch Solutions’ unit BMI believes the Bangko Sentral ng Pilipinas (BSP) has room to further loosen its recently trimmed key policy rate by another 75 basis points (bps) through the end of 2026, given the expected below-target growth and still-benign inflation ahead.

“We expect 50 bps in 2026 cuts to support the economy while inflation remains benign,” BMI said in a commentary published on Monday, Sept. 1, noting that the central bank could keep key interest rates at five percent in October before resuming easing in December.

This came despite the BSP’s less dovish tone following the fresh reduction in borrowing costs last month, which rests on the view that the current key lending rate has reached the “Goldilocks” level—neither too high to stifle growth nor too low to stoke inflation.

Growth in economic output is projected by BMI to clock in at 5.4 percent this year and 5.2 percent in 2026—both falling short of the government’s downscaled targets of 5.5 to 6.5 percent in 2025 and six to seven percent in 2026.

To recall, gross domestic product (GDP) growth averaged 5.4 percent in the first half of the year, with growth expected to slow in the second half “due to weaker growth in remittances and tariff uncertainty.”

“We therefore think the BSP has further room to ease and maintain our forecast for another 25-bp cut in the fourth quarter of 2025,” BMI said.

Such risks could continue weighing on the Philippine economy through next year, solidifying the case for further easing. Previously expecting a quarter-point reduction, BMI has turned more dovish than the market in its outlook.

It expects the key policy rate to settle at 4.25 percent by the end of 2026. Since the BSP kicked off its easing cycle in August last year, it has reduced key interest rates by a cumulative 1.5 percentage points (ppt) to the current five percent from 6.5 percent.

Meanwhile, BMI expects inflation to quicken by 0.9 ppt to 2.5 percent next year from the 1.6-percent headline rate it anticipates this year. Among the major contributors seen to stoke inflation are adjustments in electricity rates and higher rice tariffs.

On the consumption and investment fronts, BMI has flagged a “further escalation in the tariff war globally” as a factor that could impact sentiment in these areas “more than we currently expect, leading to a larger drop in output.”

However, BMI argued that weaker output growth “will contain overall inflation.” Slower growth suggests “a greater need for the central bank to cut rates to further stimulate the economy.”

Bolstering output growth would create policy space for the central bank to loosen further, given that the United States (US) Federal Reserve (Fed) is forecast to reduce its fund rates by a cumulative 50 bps also in 2026.

“By holding steady [in October], BSP could regain some policy space, as [we expect the US Fed] to cut interest rates in September,” BMI said.