Due to the pessimistic outlook from businesses related to flood control concerns, the Bangko Sentral ng Pilipinas (BSP) has lowered its growth projection for next year to 5.3 percent, which is below the reduced target of six to seven percent.

BSP Governor Eli M. Remolona Jr. revealed in a One News PH interview on Friday, Oct. 10, that the central bank previously projected the gross domestic product (GDP) growth to clock in at a below-target 5.6 percent in 2026.

“Our own projections suggested that business sentiment had turned negative. When we factored that in, it told us that growth would slow down in 2026, but recover strongly in 2027 [at 6.3 percent],” Remolona said.

Remolona, in particular, said the BSP now believes output growth could fall to 5.3 percent. BSP Deputy Governor Zeno Ronald R. Abenoja had earlier said that GDP growth could fall short of the government’s revised target of 5.5 percent to 6.5 percent for this year.

While a moderation is expected, Remolona believes “the slowdown is going to be short-lived.” From the current period, he sees a slowdown for the next two to three quarters, “and then we’re seeing a better trajectory than before.”

Remolona asserted a “silver lining” where growth is expected to slow until 2026 before rebounding strongly afterward.

It can be noted that the BSP decided to reduce the key interest rate by a quarter of a point to 4.75 percent from the current five percent, mainly due to the deepening probe into flood control corruption cases.

This brought the policy rate back to its September 2022 level—the lowest level before a series of hikes that pushed it to a peak of 6.5 percent.

According to the governor, the major development that prompted the central bank to deliver its fourth reduction was “a decline in the stock market from around the end of July through September.” For Remolona, this was “enough to justify a cut in the policy rate.”

On business sentiment, Remolona said in a separate interview with CNBC that surveys show there are “fewer companies making plans for expansion” alongside a decline in the stock market.

He reiterated that the new sweet spot for both the country’s output and inflation stands between four percent and five percent. “So we have more wiggle room than we thought when it comes to the policy rate.”

Looking ahead, the BSP expects the flood control scandals to be resolved, which Remolona said would be evident in an improving stock market and stronger business sentiment, as indicated by surveys, which is expected to occur about a year from now.

After the central bank’s “surprise” easing, American banking giant Citi said it continues to expect another 25 basis points (bps) cut in the last monetary policy meeting in December. If realized, this would mark the fifth easing this year to 4.5 percent, posting a cumulative 125 bps worth of reductions this year.

Beyond December, Citi further expects another cut to 4.25 percent by the first quarter of 2026.

“Our view of two more front-loaded cuts is also optically consistent with our forecasts for monthly inflation prints to remain below the floor of BSP’s two- to four-percent target range till February 2026,” Citi said in an Oct. 10 commentary.

It forecasts growth to clock in at 5.3 percent in both 2025 and 2026, lower than the growth targets for both periods. Its projection for next year matches that of the central bank.