After the economy grew weaker-than-expected in the third quarter, foreign banking giants intensified expectations for a December policy easing, with HSBC pricing in a “jumbo” interest rate cut due to the infrastructure spending fiasco and insufficient fiscal stimulus.

HSBC ASEAN Economist Aris Dacanay said in a Nov. 7 commentary that the third-quarter gross domestic product (GDP) expansion reinforced another Bangko Sentral ng Pilipinas (BSP) easing in December after its recent shift to a more dovish stance, due in part to alleged corruption in public infrastructure funds.

Dacanay said the bank believes the most likely scenario is for the BSP to proceed with reducing its key borrowing cost by a quarter of a point, bringing the current 4.75 percent down to 4.5 percent.

However, Dacanay noted that historically, “the fiscal drag can persist for longer than a year,” especially when there are no “immediate policy or institutional reforms” to address public spending issues head-on.

“Hence, to make up for the lack of a fiscal impulse, we think there is a downside risk that the BSP opts for an outsized rate cut of 50 basis points (bps) to 4.25 percent to support private sector demand and exporters,” Dacanay said.

Exports partially offset the overall slowdown in output expansion, which suffered a significant setback from declining investment and the moderation in government spending as anticipated.

Three other foreign banking giants—Japan-based MUFG, the Netherlands-based ING, and Singapore-based UOB—said the latest growth rate, coupled with the steady price movements in October, bolsters the case for further easing before the end of the year. October inflation settled at 1.7 percent.

Think tank Capital Economics also said the latest macroeconomic data “confirm that the corruption scandal is having a severe impact on the Philippine economy, increasing the chances of the central bank cutting rates at its next meeting in December.”

Michael Wan, senior currency analyst at MUFG, said this also comes alongside the central bank’s passiveness in intervening in the foreign exchange (forex) market despite the peso recently plunging to its weakest level, breaching the ₱59:$1 rate.

“Considering persistent domestic risks to the growth trajectory, we maintain our view that the BSP will likely continue its monetary easing cycle into early 2026, with an additional 25 bps cut in the first quarter of 2026,” UOB said. It sees the terminal rate settling at 4.25 percent by the end of next year.

While exports were the force that bucked the slowdown in the quarter ending September, ING Asia-Pacific Research Regional Head Deepali Bhargava asserted this resilience “may fade in 2026 as the full impact of higher tariffs takes hold, eroding competitiveness.” United States (US) President Donald Trump slapped Philippine exports with a 19-percent tariff.

“As a result, we now expect full-year GDP growth for 2025 at 4.7 percent, down from our estimate of 5.2 percent earlier,” Bhargava said. This would move the figure further away from the government’s target.