The Bangko Sentral ng Pilipinas (BSP) should hold its benchmark interest rate steady despite cooling economy and stable inflation, as further easing risks being perceived as reactive attempt to shore up flagging confidence and currency stability, according to GlobalSource Partners.

In a Dec. 22 commentary, GlobalSource economists Diwa Guinigundo and Wilhelmina Manalac argued that while price pressures have stabilized, the current slowdown is increasingly driven by institutional factors and sentiment shifts that monetary policy is ill-equipped to address.

Despite improved liquidity and credit access, business and investment activity remain sluggish, which GlobalSource attributed to heightened uncertainty over governance and the management of large-scale infrastructure spending.

These headwinds contributed to a significant slowdown in the third quarter, when gross domestic product (GDP) grew by four percent, the weakest performance in more than four years.

The central bank expects further deceleration to approximately 3.8 percent in the final three months of the year, which would pull full-year growth to 4.7 percent, missing the government’s official target.

The BSP’s most recent decision to lower borrowing costs was predicated on deteriorating growth outlook, largely tied to the fallout from infrastructure and flood-control controversies that have weighed on private sector sentiment.

In its final policy meeting of 2025, the central bank reduced the target reverse repurchase rate to 4.5 percent from 4.75 percent, bringing total easing to 200 basis points since the cycle commenced in August of last year.

However, GlobalSource warned that additional cuts in the current environment could backfire. Rather than being viewed as proactive measure to support growth, a rate reduction might be interpreted by markets as a signal of worsening economic or political conditions, thereby weakening the intended impact.

The think tank noted that a pause in the easing cycle should not be mistaken for pivot toward restrictive stance. Financial conditions in the country remain accommodative, characterized by low inflation-adjusted borrowing costs, sufficient money supply, and a resilient banking sector.

A hold would allow policymakers to gauge whether previous cuts have been effective in boosting demand without triggering further volatility in the peso or damaging investor confidence, GlobalSource said.

Furthermore, the economists cited the country’s fiscal challenges, with the debt-to-GDP ratio climbing above 63 percent, reflecting persistent gap where government spending growth outpaces revenue collection.

GlobalSource suggested that by exercising restraint, the BSP avoids the appearance of using monetary tools to compensate for fiscal or institutional shortcomings.