The Bangko Sentral ng Pilipinas (BSP) cut its policy rate by 25bp to 4.25%, in line with expectations. It paired the cut with more cautious guidance, as the growth recovery remains weaker than expected.
The BSP removed wording that suggested it was “nearing the end of easing,” leaving a more neutral policy stance. It also tied future decisions more closely to how quickly confidence improves.
Shift In Policy Guidance
ING cut its 2026 GDP growth forecast to 5.2% and flagged downside risks. Fourth-quarter data showed that weak government spending remains a major drag.
This softer public spending was linked to lower fiscal outlays and weaker business and household confidence. The pressure is expected to continue into the first half of 2026, as investigations and unresolved political uncertainty weigh on sentiment.
High real rates, weaker GDP prospects, and low confidence were seen as conditions that could allow more rate cuts. Further easing was also described as a factor that could keep the Philippine peso weaker against the US dollar.
We see the recent 25bp cut to 4.25% as less important than the change in guidance. By removing language about “nearing the end of easing,” the BSP leaves room for additional cuts. This shift is supported by January 2026 inflation, which cooled to 2.8% and gives the BSP more space to act.
Trading Implications For Php
This more cautious stance reflects a recovery that is losing momentum. In the final quarter of 2025, GDP growth slowed to 4.9%, pressured by weak consumer sentiment and ongoing weakness in government spending. We expect these headwinds to persist through at least the first half of this year.
Given this outlook, we expect the Philippine peso to stay under pressure against the US dollar. Derivatives traders may consider positioning for further PHP weakness, such as buying US dollar call options or using long-dated USD/PHP forward contracts. This approach aims to benefit if another rate cut later this year weighs on the peso.
USD/PHP has already risen to around 58.50, and this trend may continue as long as markets expect more easing. A similar pattern played out in 2025, when fears of weaker global demand led to a long stretch of peso underperformance. Today’s political uncertainty adds to investor concerns.
Beyond FX, the prospect of lower rates may also create opportunities in local rates. Traders could consider “receive-fixed” interest rate swaps to benefit from falling rates. If the BSP cuts again, the floating rate leg would decline, increasing the value of a receive-fixed position.
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