BNY expects Bangko Sentral ng Pilipinas to cut its policy rate by 25 basis points to 4.25% on 19 February, continuing its easing cycle. It says the main reason is rising risks to economic growth.
Inflation is seen as manageable within the medium-term target, and it is not expected to drop quickly. BNY highlights greater downside risks to growth than near-term upside risks to inflation.
Growth Risks Driving Monetary Easing
The bank sees a chance of at least one more rate cut in Q2 2026. It links this view to domestic political uncertainty and limited clarity on when growth will recover.
It also notes that the Philippine peso has a cyclical balance-of-payments profile. This increases the need for rate support and for a strong real-rate buffer to help stabilise emerging-market currencies.
With the central bank expected to cut its key rate by 25 basis points to 4.25% this Thursday, the message is clear. Policymakers are prioritising growth support over inflation concerns. For derivative traders, this points to a weaker Philippine peso against the US dollar.
Recent data supports that view. January inflation came in at 3.1%, well within the central bank’s target range. Meanwhile, GDP growth in Q4 2025 was a disappointing 5.2%, signalling a slowdown that supports monetary easing. Through much of 2025, the peso also struggled as the trade deficit widened, making it sensitive to any loss of yield advantage.
Derivative Positioning For Peso Weakness
In this setting, buying US dollar calls against the peso may be an attractive strategy. These options give the right to buy dollars at a set price, which can profit if the peso weakens after the rate decision. Traders could also consider selling peso forward contracts to lock in an exchange rate for the coming months.
Looking beyond this week, the prospect of at least one more cut in the second quarter suggests the peso could stay under pressure. Further easing can also keep volatility elevated, which may suit longer-dated options that expire after Q2. Keeping a solid interest-rate gap is important for the peso, and continued rate cuts reduce that support.
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