The Bangko Sentral ng Pilipinas (BSP) is prepared to deploy a deeper round of interest-rate cuts as a secondary defense if the country’s economic expansion fails to hold the five percent level, according to the central bank chief.

Speaking to the Tuesday Club on Jan. 6, BSP Governor Eli M. Remolona Jr. said that while current data supports a “less dovish” posture, any deterioration in consumer demand or national output would force the central bank to expand its easing beyond the planned 25-basis-point cut.

“If the economy grows below five percent, then I think there are grounds for one more cut beyond the 25 bps,” Remolona said, noting that cutting the benchmark rates twice more would signal a more serious problem.

“Two more rate cuts would essentially mean that conditions are worse than we expected. That would require a negative surprise in the data,” Remolona said.

Currently, however, the policy-setting Monetary Board (MB) is close to its desired policy stance, which leaves the board limited room for further rate adjustments.

Remolona explained that when the board sets monetary policy, it considers the current growth rate as well as projected growth rates over a year. The BSP can intervene if weaker growth reflects soft demand.

Remolona said there is a chance for further easing but also a possibility that the BSP will keep rates unchanged. “There is little likelihood, however, that we will raise rates in 2026,” Remolona added, describing such a move as “unthinkable” given the unfolding economic data.

He also maintained that a quarter-point reduction in February, at the first policy meeting of the year, is on the table, though he cautioned that it is “unlikely.”

According to the BSP chief, the Philippines’ output could have expanded around 4.6 percent last year, far below the government’s target of 5.5 to 6.5 percent. This implies that growth in the fourth quarter of 2025 may have fallen below four percent.

Remolona said the economy underperformed in 2025 largely due to a hit to investor confidence, which dragged down both investment and consumption.

For this year, the central bank expects GDP to grow by 5.4 percent and rebound to around six to 6.2 percent next year.

Although not as high as the BSP’s previous estimate, Remolona noted that an economic expansion of 5.4 percent in 2026 is “pretty good” given the backdrop of lost confidence stemming from large-scale corruption in flood-control funds.

Despite the erosion of investor confidence, private spending helped support the economy and offset the slowdown.

Meanwhile, the outlook for local output growth has become cloudier due to governance concerns and external uncertainties.

“Business sentiment has continued to decline on governance concerns and uncertainty over global trade policy,” the BSP said in a Jan. 6 statement. “Nevertheless, domestic demand is expected to rebound gradually as the effects of monetary policy easing work their way through the economy and public spending improves.”

To recall, the BSP closed 2025 with its fifth cut—eighth overall since August 2024’s 6.5 percent. The board cited its downbeat outlook for the economy, owing to persistent concerns tied to the flood control graft.

It can also be recalled that the flood control saga began in the second half of 2025, stripping away the cloaks of individuals who had been dip-soaking their hands in public infrastructure funds. The Marcos administration vowed to prosecute the perpetrators, restitute stolen funds, and implement reforms.

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.

Until such measures materialize, Remolona warned that the impact of the flood control mess on investor confidence will persist through the first half of 2026.

On prices, inflation in 2025 averaged 1.7 percent, with December inflation at 1.8 percent. The BSP’s expectations on price movements are “well anchored,” given the inflation outlook, which remains subdued.

Inflation is still expected to remain within the two- to four-percent target band this year and next. “We’ll make sure inflation continues to remain low and manageable within our target range,” Remolona said.