Singapore-based Oversea-Chinese Banking Corp. Ltd. (OCBC) expects the Bangko Sentral ng Pilipinas (BSP) to keep its freshly lowered 4.5-percent key policy rate unchanged through next year.

“Our baseline is for the BSP to keep its policy rate unchanged at 4.5 percent through 2026, implying a prolonged hold,” OCBC wrote in its weekly report published on Dec. 15. The bank added that while it sees a long pause, it does not rule out additional easing, especially if gross domestic product (GDP) growth slumps, as observed this year.

BSP Governor Eli M. Remolona Jr. said last week that the easing cycle may have already ended at the current level, but with the caveat that it could continue if the policy-setting Monetary Board (MB) sees another indicator that warrants further reduction.

The latest rate cut was delivered last week, as the local economy is seen treading a gloomier path owing to the prolonged impact of governance issues.

Remolona noted that the latest quarter-point interest rate cut will help revive output growth “at a time when painful governance issues around infrastructure investments have weakened government spending, business confidence, and domestic demand.”

While Remolona said the cycle may have already come to a close, further downward adjustments to the key borrowing cost could be justified if growth shows continued deterioration.

Economic growth sharply slowed to four percent in the third quarter, pulling down the year-to-date average expansion to five percent. This fell short of the government’s already downscaled full-year growth target of 5.5 to 6.5 percent.

To date, the BSP has lowered the key borrowing cost by a cumulative two percentage points (ppts) to 4.5 percent from 6.5 percent in August 2024, before inflation-targeting monetary policy easing began.

Directors at the Washington-based International Monetary Fund (IMF) said in a report based on their 2025 Article IV Consultation with the Philippines that “the monetary policy stance should remain accommodative amid elevated downside risks to growth and well-anchored inflation expectations,” and welcomed the authorities’ data-dependent approach.

Inflation clocked in at 1.5 percent in November, its slowest pace in four months. It also marked the ninth consecutive month that inflation remained below the BSP’s two- to four-percent target band, a level the central bank deems manageable and conducive to expansion.

IMF directors also urged the BSP to “continue to allow the exchange rate to play its role as a shock absorber, with any interventions used on a temporary basis to address disorderly market conditions.”

Remolona has said that the central bank will not intervene in the foreign exchange (forex) market to manage day-to-day currency movements. However, he noted that the BSP would step in if the peso enters a sustained losing streak against the United States (US) dollar.

He clarified that monetary authorities closely monitor the peso because excessive depreciation could feed into inflation, aside from supply-side pressures.