The Bangko Sentral ng Pilipinas (BSP) is expected to proceed with aggressive interest rate cuts over the next two years even as the peso hovers near record lows, according to Fitch Solutions unit BMI.
In a Feb. 9 commentary, BMI said the central bank will likely lower its key policy rate to four percent by the end of 2026. This easing cycle is expected to continue despite the projected weakening of the local currency to 59.50 per United States (US) dollar by year-end, down from a recent level of 58.76.
Such a slide would return the peso to the historic lows first reached in mid-January.
It bears recalling that the peso first plunged to its lows in the second half of 2025, slipping by 1.5 percent year-on-year “as corruption concerns weighed on investor confidence.”
Despite the peso’s recent rebound due to US dollar weakness, BMI said the local currency remains an underperformer relative to its moving averages, reflecting sustained downward pressure.
Despite the downside risks from easing for the peso, BMI believes the BSP will proceed with a quarter-point rate cut at the upcoming Feb. 19 policy meeting, bringing the benchmark rate to 4.25 percent from 4.5 percent.
BMI said continued monetary easing would likely be reinforced by the disappointing economic performance in the second half of 2025, which fell well below the minimum growth target of 5.5 percent, following a three-percent expansion in the fourth quarter of 2025.
Supporting this dovish stance is the near-term inflation easing back into the two-to-four-percent target band. Inflation in January 2026 stood at two percent, partly driven by higher housing and utility costs.
Such a policy move would narrow the Philippine-US policy rate differential to 50 basis points.
“We expect the countervailing forces of a weaker US dollar and the BSP cutting rates ahead of the US Federal Reserve to keep the peso range-bound over the next few months,” BMI said.
Given this outlook, BMI expects the BSP to step in if the peso-dollar pair moves beyond the ₱60 level, raising the risk of higher import costs and inflation.
Such intervention is not seen as a concern, as the central bank holds “sufficient reserves” to defend the currency during periods of sustained weakness that could fuel inflation.
BSP data showed the country’s foreign exchange reserves rose toward a record high in January, supported by a sustained rally in gold prices and a successful sovereign bond sale that strengthened the country’s buffer against global volatility.
Gross international reserves (GIR) climbed to $112.51 billion as of January 2026, nearing the record high of $112.71 billion posted in September 2024, up from $110.8 billion at the end of December 2025.