While the Bangko Sentral ng Pilipinas (BSP) has signaled its interest rate easing cycle is nearing an end, private sector economists anticipate up to two additional cuts, bringing the key rate to a final four percent in 2026.

Economic research firm Capital Economics argued that the slowing Philippine economy is “certainly in need of some support,” which central bank rate reductions could provide.

Growth sharply slowed to four percent in the third quarter, hampered by the fallout from alleged corruption involving flood control funds. Jason Tuvey, Deputy Chief Emerging Markets Economist at Capital Economics, projects the impact of the scandal will continue to spill over into the coming quarters, translating to below-target gross domestic product (GDP) growth in 2026.

Tuvey expects the country’s GDP to expand by 4.5 percent next year, which is 1.25 percentage points (ppt) lower than the government’s downscaled yearly growth target of six percent to seven percent.

As a result, Capital Economics anticipates the key interest rate will be trimmed by two more quarter-point cuts to finish at four percent. The forecast follows the BSP’s latest 25 basis points (bps) reduction on Dec. 11, which lowered the rate to 4.5 percent from 4.75 percent.

BSP Governor Eli M. Remolona Jr. said the move was aimed at offsetting the negative impact of the flood control scandal on business and investment confidence.

The latest cut marks the fifth consecutive reduction this year and the eighth since August 2024, totaling a two percentage point (ppt) drop from 6.5 percent before the easing cycle began. Tuvey’s forecast, if adopted by the monetary authorities, would bring the cumulative reductions to 250 bps.

Fitch Solutions unit BMI and Dutch financial giant ING have also priced in further easing. BMI expects two 25 bps cuts to be “frontloaded” in the first half of 2026, against a backdrop of slowing growth and stable inflation expectations.

BMI projects economic expansion of 5.2 percent in 2026, a slight pickup from the current year’s slump but lackluster compared to last year's 5.7 percent and the official 2026 growth goal.

Deepali Bhargava, Regional Head of Research at ING Asia-Pacific, anticipates the country’s GDP to “remain soft” at around four percent, matching the third-quarter growth rate.

Bhargava, who noted that the impacts of recent massive typhoons will “add to the pain,” expects the normalization of public spending to only become evident in the second half of 2026, contradicting Finance Secretary Frederick Go’s assurance of an early recovery.

“The drag from fiscal weakness has been significant, and even when spending improves, consumer confidence will take time to recover,” Bhargava said. She expects the economy to expand by 5.4 percent in 2026, a figure she noted could still be worse than her relatively higher expectation.

In contrast, UK-based Oxford Economics expects the key policy rate to hold at the latest 4.5 percent level, aligning with the BSP’s recent signal. While Sunny Liu, Lead Economist at Oxford Economics, sees no more cuts, he concedes that “weaker-than-expected economic activity could prompt additional easing.” Governor Remolona has also noted that a worse GDP performance would justify another cut.

Jonathan Ravelas, Senior Adviser at Reyes Tacandong & Co., warned that the local economy should not depend solely on lowering borrowing costs.

“Borrowing costs are down—good time for businesses to lock in financing and invest. Gradual cuts could still surprise, but don’t rely on rates alone,” Ravelas asserted. “Real boost will come if the government speeds up action on governance, fiscal discipline, and sector reforms. Without that, impact stays limited amid political noise and corruption concerns.”