The Bangko Sentral ng Pilipinas (BSP) cut its policy rate by 25bp to 4.25%, which matched expectations. The BSP paired the move with more cautious guidance as the growth recovery remains softer than expected.
The BSP removed wording that suggested it was “nearing the end of easing”, leaving a more neutral policy stance. Future decisions were linked more closely to how quickly confidence improves.
Shift In Policy Guidance
ING reduced its 2026 GDP growth forecast to 5.2%, with risks to the downside. Fourth-quarter data pointed to soft government spending as a persistent drag.
The weaker public spending was linked to lower fiscal outlays and weaker business and household confidence. The pressure was expected to last into the first half of 2026 amid investigations and unresolved political uncertainty.
Elevated real rates, muted GDP prospects and weak confidence were cited as conditions that could allow further rate cuts. Further easing was described as a factor that may keep the Philippine peso weaker against the US dollar.
We see the recent 25 basis point rate cut by the Bangko Sentral ng Pilipinas to 4.25% as less important than the shift in its guidance. The central bank has removed its language about “nearing the end of easing,” which opens the door for further cuts. This pivot is supported by the January 2026 inflation rate, which we note cooled to 2.8% and gives the BSP room to act.
Trading Implications For Php
This more uncertain stance reflects a growth recovery that is losing momentum. Looking back, the final quarter of 2025 saw GDP growth slow to just 4.9%, weighed down by poor consumer sentiment and a persistent drag from government spending. We expect this challenging environment to continue through at least the first half of this year.
Given this outlook, we believe the Philippine Peso will face sustained pressure against the US Dollar. Derivative traders should consider positioning for further PHP weakness, perhaps through buying US dollar call options or establishing long-dated USD/PHP forward contracts. This strategy anticipates the market impact of another potential rate cut later this year.
The USD/PHP has already climbed to around 58.50, and this trend is likely to continue as long as the prospect of easing remains. We saw a similar dynamic back in 2025 when concerns over slowing global demand first emerged, leading to a prolonged period of peso underperformance. The current political uncertainty is only adding to these concerns for investors.
Beyond currency plays, the potential for lower rates creates opportunities in the local interest rate market. Traders could look at entering “receive-fixed” interest rate swap positions to capitalize on falling rates. As the BSP makes further cuts, the floating rate paid on these swaps would decline, increasing the value of the position.
