What the Bangko Sentral ng Pilipinas (BSP) has done was bring the highs down and the lows up. That is friction—or grease—for everything.

Borrowing costs were still elevated at the onset of the year, even as the BSP had already begun its inflation-targeting monetary policy easing cycle in August 2024. The key interest rate was still at 5.75 percent in January after the three consecutive cuts the central bank made late last year.

This initially brought down the benchmark rate by 75 basis points (bps) from the 6.5-percent peak. The BSP decided to keep the rate steady at its first policy meeting this year against the backdrop of an uncertain outlook for both price movements and gross domestic product (GDP).

It can be recalled that easing consumer prices largely contributed to the continuation of monetary easing in April.

During its second easing in June, the Monetary Board (MB)—the BSP’s highest policymaking body—noted the global economic slowdown. This was mainly blamed on uncertainty over United States (US) trade policy and the conflict in the Middle East, which, at the time, had yet to subside.

It said the Philippine economy was at risk of moderating amid these external drags. True enough, output expansion in the quarter ending in June slowed significantly to 5.5 percent from 6.5 percent in the same quarter last year.

Lending costs were further reduced to a benchmark rate of five percent in August, a year after the first easing. At this point, inflation appeared to have retired as the top concern for adjusting the central bank’s policy stance.

US policies on global trade and investment threatened global economic activity, which was seen spilling over into the domestic scene.

It can be recalled that the BSP shifted to a more dovish tone during its October easing to 4.75 percent as it saw the economy underperforming, with public infrastructure spending expected to bear the brunt of the brazen misuse of flood control funds.

Lastly, the MB is closing the year with its fifth cut this year—eighth cut since August 2024—to 4.5 percent. In its most recent policy action, the board cited its downbeat outlook for the economy, owing to persistent concerns tied to flood control graft.

In the saga of flood control graft, the central bank played its part as head of the Anti-Money Laundering Council (AMLC), securing freeze orders to immobilize assets and properties tied to anomalous contracts.

AMLC reported on Dec. 19 that the total value of frozen assets owned or linked to government contractors exceeded ₱20 billion. Contractors, engineers, and entities on the country’s financial intelligence unit’s (FIU) watchlist are suspected of siphoning public funds without actually implementing the projects.

It can be noted that the latest freeze order now involves assets of “a member of the House of Representatives linked to flood control irregularities.” Asset freezing was first carried out on the infamous spouse contractors Sarah and Curlee Discaya, and the “Bulacan Group of Contractors.”

For this order alone, AMLC has frozen nearly 1,200 bank accounts.

To date, 6,538 bank accounts, 367 insurance policies, 255 motor vehicles, 178 real properties, 16 e-wallet accounts, and three securities accounts have been frozen due to their links to the anomalous flood control projects.

AMLC Executive Director Matthew M. David said this latest action affirms the Council’s commitment to continue building progress despite the busy holiday season.

BSP Governor Eli M. Remolona Jr., who chairs AMLC, earlier said the impact of the deepening probe into the flood control mess could still be felt in 2026 but would start to dissipate in the second half of the year as confidence in the country’s governance is seen returning following the Marcos Jr. administration’s reforms to correct the scandals.

Remolona assured that monetary policy, while unable to tackle the flood control graft head-on, can “compensate” for the fiasco’s impact on business sentiment.

Looking ahead, private sector economists believe the BSP will still look primarily at price and exchange rate movements.

“Future moves will depend on whether inflation stays anchored and whether the Philippine peso remains stable amid global rate differentials,” Philippine Institute for Development Studies (PIDS) senior research fellow John Paolo Rivera said.

Since January, inflation has remained below the lower end of the government’s two- to four-percent target band. November inflation clocked in at a four-month low of 1.5 percent, bringing year-to-date inflation to just 1.6 percent.

Meanwhile, the Philippine peso slumped several times to its weakest-ever levels this year, notably in each month of the fourth quarter.

Records show that the peso first plunged to a record low in October at ₱59.13 per US dollar, surpassed by ₱59.17 versus the US dollar in November, which was again surpassed in December at ₱59.22 against the greenback before the central bank delivered its latest cut.

As it stands, the BSP has been firm on its stance that there will be no intervention in day-to-day exchange rate movements unless the peso gets stuck in a losing streak to the extent that it becomes inflationary.

SM Investments Corp (SMIC) group economist Robert Dan Roces said the central bank still has room to ease further if inflation stays subdued and growth continues to post a lackluster performance; otherwise, a “longer pause” becomes the most likely direction.

For Rivera, the reemergence of food supply shocks and peso weakness are seen as factors that could arrest policy easing meant to cushion the economy. He added, meanwhile, that restoring confidence and growth “will still rely heavily on fiscal execution and governance improvements.”

With the BSP noting that the easing cycle is nearing its end, Australia and New Zealand Banking Group Ltd. (ANZ) believes the central bank will opt to further reduce the key policy rate by a quarter-point to a final rate of 4.25 percent—a level it sees holding through 2027.

This forecast comes against the backdrop of ANZ projecting a negative output gap—the difference between potential and actual GDP growth—persisting beyond 2025. The Australian bank expects growth to clock in at 4.8 percent this year, five percent in 2026, and 5.6 percent in 2027, all below the government’s output growth targets.