Citing risks that the economy may accelerate more slowly than expected and that inflation will remain subdued, the International Monetary Fund (IMF) has priced in a cumulative additional 50 basis points (bps) cut in the key interest rate by the first quarter of 2026.

According to the Washington-based multilateral lender, the Bangko Sentral ng Pilipinas (BSP) is seen further easing after its eight consecutive rate cuts to 4.5 percent from the 6.5-percent peak in August last year.

If this forecast is realized, the terminal rate in 2026 will stand at four percent.

This dovish tone is supported by the IMF’s assessment, published last Dec. 15, that inflation remains favorable, while the local economy is seen treading an uncertain path, with a higher risk of performing weaker than expected.

Inflation clocked in at 1.5 percent in November, bringing the year-to-date average to 1.6 percent—both of which fall below the government’s two- to four-percent target band deemed manageable and conducive to output expansion.

Economic growth, meanwhile, slowed to four percent in the third quarter, bringing the year-to-date average to five percent—both falling short of the revised growth target range of 5.5 to 6.5 percent.

The IMF’s monetary policy projection also comes against the backdrop of inflation returning to the midpoint of the target band in 2026.

The IMF said its forecast for the BSP to maintain an accommodative stance is appropriate, given that inflation expectations remain anchored and an emerging negative output gap—the difference between potential and actual GDP growth—has widened this year.