Following the widely expected monetary policy easing to 4.25 percent, the Bangko Sentral ng Pilipinas (BSP) stands on uncertain ground regarding its future moves, as the central bank’s outlook for confidence recovery has turned murky.

BSP Governor Eli M. Remolona Jr. told a press briefing on Thursday, Feb. 19, after the first policy meeting in 2026 that the Monetary Board (MB), which he chairs, is now in a position where its next moves are “more conditional” on developments in business and consumer confidence and economic growth.

This latest policy reduction comes against the backdrop of price pressures that remain manageable and an economy undershooting the BSP’s assumptions. Gross domestic product (GDP) growth slowed to 4.4 percent in 2025, pulled down by a sharp slowdown to a three-percent expansion in the fourth quarter.

It bears noting that Remolona had earlier signaled the easing cycle was nearing its end but has now become more cautious, citing uncertainty over when confidence will return.

“We’re less certain about how soon confidence will return. We also realize that the effect of it is bigger than we thought. You combine those two things, and that makes us less certain of where the economy is heading in the next quarter or so,” Remolona said.

The BSP downgraded its 2026 GDP growth forecast to 4.6 percent from 5.4 percent previously and trimmed its 2027 projection to 5.9 percent from as high as 6.2 percent.

Meanwhile, the central bank raised its inflation forecast to 3.6 percent from 3.2 percent for 2026, and to 3.2 percent from three percent for 2027. Remolona earlier said it would be a concern if inflation exceeds three percent.

As it stands, the BSP prioritizes inflation. Remolona noted that while growth support is considered, it will only be pursued as long as it does not stoke inflation.

Asked whether markets should expect more rate cuts this year, Remolona said it is uncertain and will largely depend on how quickly confidence returns, noting that if it eventually rebounds, the BSP may not need additional easing.

The BSP cut its policy rate by 25 basis points (bps) to 4.25 percent, marking its sixth consecutive reduction and totaling 150 bps in easing since early 2025, as it responded to weaker domestic demand and slowing economic growth, while subdued inflation gave room for further support.

The central bank noted that consumption and investment posted their weakest growth since the Covid-19 pandemic, while inflation remained contained within its two- to four-percent target range despite recent upticks.

It cited that the economy had “undershot” expectations, with sluggish fourth-quarter growth reflecting weaker domestic demand and the impact of corruption-related disruptions on public investment.

Jun Hao Ng, assistant economist at think tank Oxford Economics, said the BSP is now placing greater weight on confidence indicators, noting that “future policy moves will be dependent on consumer confidence.”

Ng added that inflation is expected to gradually rise toward three percent while sentiment improves, reducing the need for further rate cuts.

As such, Oxford Economics expects the BSP to pause its easing cycle in 2026 as inflation rises and economic conditions stabilize.

Jason Tuvey, deputy chief emerging markets economist at think tank Capital Economics, said the rate cut reflects persistent economic weakness, noting that “with the economy set to remain weak amid the ongoing corruption scandal and inflation low, we think there will be at least one more 25-bp cut in the coming months.”

Tuvey added that inflation remains manageable and growth recovery will depend largely on improving confidence.

In this regard, Capital Economics anticipates the BSP may deliver additional easing if economic conditions remain soft.