The Bangko Sentral ng Pilipinas (BSP) cut its policy rate by 25 basis points to 4.25%. It cited a weaker-than-expected recovery, lower confidence, and delays in government spending due to graft-related uncertainty. BSP lowered its official growth forecasts to 4.6% for 2026 and 5.9% for 2027, down from 5.4% and 6.3%. It also raised its 2026 inflation forecast to 3.6% from 3.2%, while keeping 2027 inflation near 3%.

Cautious Easing Bias

BSP offered cautious guidance and signaled it could cut rates again if growth stays weak. DBS expects one more 25bp rate cut. To support the easier stance, BSP lowered reserve requirement rates this month on several bank-issued instruments. This is meant to add liquidity to the local banking system. The decision to cut the policy rate to 4.25% confirms a dovish turn by the BSP. For derivatives traders, lower rates reduce the yield advantage of holding Philippine Pesos. That makes the Peso less attractive. As a result, it may make sense to position for PHP weakness against the US dollar in the coming weeks. Q4 2025 GDP growth was 4.1%, which confirms that the recovery remains soft and supports the rate cut. This weak backdrop, combined with looser policy, has pushed USD/PHP toward 57.00. We expect the move to continue, with a chance to revisit levels last seen in late 2025.

Trading Implications Ahead

The BSP is putting growth ahead of inflation. It cut rates even while lifting its 2026 inflation forecast to 3.6%. This is negative for the currency because it suggests the central bank is willing to tolerate higher inflation while growth is weak. It also signals acceptance of a weaker Peso to help stimulate the economy. BSP also said more easing is possible. That points to at least one more 25bp cut in Q2. Traders may want to consider positions that benefit from lower short-term rates. Examples include receiving fixed on PHP interest rate swaps or going long government bond futures. For equity derivatives, the picture is less clear. Lower rates can support stocks, but the cut in the 2026 growth forecast to 4.6% and ongoing uncertainty around public spending could weigh on earnings. We expect higher volatility in the Philippine Stock Exchange Index. Put options may be a practical hedge against downside risk. This setup looks similar to the aggressive easing cycle in 2020, when the BSP cut rates sharply to support the economy during the pandemic. Global conditions are different now, but the local approach—supporting growth even if it pressures the currency—looks familiar. We therefore expect the Peso to underperform many regional peers. Create your live VT Markets account and start trading now.

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