Even as the local economy is expected to fare worse than the four-percent expansion in the third quarter, the Bangko Sentral ng Pilipinas (BSP) said that slashing the freshly lowered key interest rate by 50 basis points (bps) could signal desperation on the part of monetary authorities, which could further erode confidence.

Speaking to reporters on the sidelines of the 4th Digital Financial Inclusion Awards, BSP Governor Eli M. Remolona Jr. said the Monetary Board (MB) will not move aggressively on easing after the BSP’s highest policy-setting body decided to trim the key interest rate to 4.5 percent for the fifth time this year.

Remolona explained that the latest reduction was mainly due to the weakness of gross domestic product (GDP) growth, singling out private consumption as the area the central bank was able to anchor.

He said the BSP’s emerging GDP forecast points to 3.8-percent growth in the fourth quarter, slower than the 4.5-percent expansion in the previous quarter.

Excluding the pandemic, this lackluster growth would be the slowest since the third quarter of 2011, at three percent. This would be a déjà vu of the era when former President Benigno Simeon Aquino III also launched an anti-corruption campaign that tightened government spending.

It can be recalled that the sharp output slowdown in the previous quarter was due to tightened spending following the massive flood control scandal first unearthed midyear.

“If we go to 50 bps or implement an off-cycle cut, it could worsen the loss of confidence, as people may perceive the BSP as desperate,” Remolona told reporters.

Based on the data indicators, Remolona said the board could adjust the rate further by 0.25 point. This move considers the limited room the central bank has to lower the key rate.

Remolona, who earlier said that the five-percent rate had already reached the Goldilocks level, now said the monetary authorities have gone back to assessing their estimate of the Goldilocks rate—neither too high to stifle growth nor too low to stoke inflation.

He said they are still refining their estimates and are currently “relying more on the output gap,” while working to pinpoint the Goldilocks rate. Such a level, he said, is “so much more tricky to estimate, but useful once determined.”

Responding to concerns on the timeline of potential easing, the governor said it would be done in a regular meeting—“not off-cycle.”

Michael Wan, senior currency analyst at MUFG Bank, Ltd., has forecast the central bank to deliver another quarter-point cut in February 2026 “before an extended pause.” If adopted by the MB, another cut would bring the key policy rate to a terminal rate of 4.25 percent.

“Our base case is that government spending should pick up next year, but with growth remaining below trend and a still negative output gap,” Wan said. He expects growth to average five percent next year, a slight recovery from the recent slump, but still underperforming compared to last year’s 5.7 percent.

Similarly, Singapore-based UOB has also projected another 20 bps cut, unchanged from its previous forecast.

“We maintain our view of one final 25 bps reduction in 2026, but it is now expected in the second quarter of 2026 rather than in the first half,” UOB senior economist Julia Goh wrote in a commentary.

This comes against the backdrop of tempered expectations of an aggressive move, coupled with expected dovishness from the United States (US) Federal Reserve under US President Donald Trump. Goh sees the terminal rate falling to 4.25 percent.