Foreign banks expect the Bangko Sentral ng Pilipinas (BSP) to follow its surprise rate cut in October with another quarter-point reduction, pointing to slowing global growth and the need for earlier easing to cushion the pullback in spending.

Global investment banking giants Goldman Sachs and Deutsche Bank, taking off from the BSP’s surprise rate cut to 4.75 percent last Oct. 9, anticipate the central bank to further reduce the policy rate by 25 basis points (bps) to 4.5 percent on Dec. 9—the last monetary policy meeting for 2025.

“We bring forward our first-quarter 2026 rate cut forecast, and now expect a 25-bp rate cut at the December 2025 meeting,” Goldman Sachs Economics Research said in a commentary published on Oct. 9, a copy of which was obtained by Manila Bulletin.

Goldman Sachs attributed its revised forecast to the BSP’s unexpected easing last week, expectations of “slower global growth” in the fourth quarter of 2025, and its “more dovish Fed [United States Federal Reserve] outlook than market pricing.”

Looking ahead, the BSP might move toward further easing next year if activity data, such as the business sentiment index, suggest gross domestic product (GDP) might further weaken, Goldman Sachs said.

Meanwhile, Deutsche Bank Research’s forecast sounds more dovish, as it looks at a terminal rate of 4.25 percent, which it expects to come in the first interest rate decision of the BSP’s policy-making Monetary Board (MB) in 2026.

“The BSP’s estimate that policy transmission could take six to 18 months also suggests that it may want to cut sooner rather than later, especially as a pullback in government spending is likely to have a near-immediate impact on the economy,” the Germany-based bank noted in an Oct. 10 report.

Since the BSP kicked off its inflation-targeting easing cycle in August last year, key interest rates have so far been reduced by a total of 1.75 percentage points (ppts). For this year alone, rates have been cut by a cumulative one ppt.

It can be recalled that the BSP decided to trim borrowing rates last week as the central bank’s outlook on local output turned dimmer due to the negative economic impact of the misuse of flood control infrastructure funds.

Alleged public infrastructure fund corruption, coupled with the drag from uncertainties over US trade policy, prompted the BSP to lower its gross domestic product (GDP) growth forecast to below the lower end of the already downscaled target of 5.5 to 6.5 percent for this year.

BSP Governor Eli M. Remolona Jr. also said earlier that the central bank revised its higher 5.6-percent growth forecast for 2026 to 5.3 percent, moving further away from the lower end of the annual six- to seven-percent goal for next year through the end of the Marcos Jr. administration in 2028.

On the inflation front, the BSP lowered its expectations for 2026 and 2027 to 3.1 percent (from 3.3 percent) and 2.8 percent (from 3.4 percent), respectively.

While the BSP said its inflation outlook is still manageable, it warned that possible power rate hikes and higher rice import tariffs could push consumer prices up.