Japanese financial giant MUFG Bank Ltd. expects the Bangko Sentral ng Pilipinas (BSP) to maintain the key policy rate at five percent throughout 2025 but anticipates the central bank will reduce it by another one percentage point (ppt) to four percent in 2026.

Based on MUFG’s Sept. 24 report, which focused on fourth-quarter credit conditions in emerging markets, the policy-setting Monetary Board (MB) is expected to pause its easing cycle this year but resume next year.

“The resumption of Fed [United States Federal Reserve] easing will likely encourage several EM [emerging market] central banks to continue lowering interest rate cuts, which will further help domestic demand,” MUFG said.

“However, as most EM central banks have already been lowering interest rates for over a year, we expect smaller rate cuts ahead, unless economic conditions deteriorate significantly,” it added.

For the Japanese bank, once the key lending rate falls to four percent, the central bank will maintain this level through the end of the Marcos administration in 2028.

To date, the BSP has reduced key interest costs by a total of 1.5 percentage points from 6.5 percent before the year-long easing cycle began in August last year.

For this year, the BSP has two remaining policy meetings scheduled for next week, Oct. 9 and Dec. 11.

It can be recalled that the BSP decided to reduce key interest rates in August as the “impact of US [United States] policies on global trade and investment continues to weigh on global economic activity,” which the central bank sees spilling over and inflicting damage on the local economy.

Data from the Philippine Statistics Authority (PSA) showed that the Philippine economy’s growth averaged 5.4 percent in the first half of the year, following a modest uptick to 5.5 percent in the second quarter. Still, this fell short of the downscaled full-year growth target of 5.5 to 6.5 percent.

Despite this, MUFG has projected full-year growth of 5.6 percent, which falls within the target. It, however, expects the economy to accelerate by 5.6 percent next year, falling short of the trimmed six- to seven-percent growth target.

On a positive note, growth is seen to break into the goal in 2027 and 2028, which are projected to post 6.5 percent growth.

Headline inflation also hit a five-month high in August at 1.5 percent, but it remained tame, clocking in below the government’s goal of two- to four-percent annual price increases deemed manageable and conducive to economic growth.

Even against the backdrop of weather disturbances and import bans, MUFG believes inflation will fall within the target band from 2025 through 2028.

In particular, MUFG expects inflation to average 2.3 percent this year, 3.2 percent in 2026, 3.3 percent in 2027, and 3 percent in 2028.