‘Growth slowdown only temporary’

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) expects the ongoing economic slowdown to last only two to three quarters, saying continued policy easing will help offset the drag from weaker business sentiment due to governance concerns surrounding public infrastructure projects.

Speaking in an interview on “Money Talks,” BSP Governor Eli Remolona Jr. said central bank projections point to a slower growth in the near term, followed by a strong rebound starting in late 2026.

“Once we factored in negative business sentiment, we found that growth would slow down in 2026, but recover and more than catch up in 2027,” Remolona said.

“Inflation as well would be lower than we thought in 2026 and 2027. So that gave us more room to cut,” the BSP chief added.

The Monetary Board on Thursday surprised markets by slashing its benchmark rate by another 25 basis points to 4.75 percent, marking its fourth straight rate cut this year. This brought the cumulative rate cuts to 175 basis points since August 2024.

According to the governor, the Monetary Board’s decision was “overwhelmingly in favor of a cut,” amid growth concerns.

Based on the BSP’s latest baseline scenario, the economy is now projected to grow below the government’s target of 5.5 percent this year and further down to 5.3 percent in 2026.

“We had thought we would see higher growth rates in 2023 and 2024, but we didn’t get those growth rates. Now we know why. What we thought was investment was not investment,” Remolona said.

He  said the central bank’s latest model adjustments indicate that the so-called “Goldilocks rate” – or the level of policy rate that is just right for the economy – is closer to four percent, giving policymakers more room to support the economy.

“The numbers changed, and one reason for the change was negative business sentiment,” he said. “The Goldilocks rate could be lower than we thought. That factored into the decision as well.”

He attributed the weaker business confidence to governance issues surrounding government flood control projects, which have led to a corruption probe and the suspension of several infrastructure initiatives.

“The scandal and the business sentiment associated with it made it clearer that we needed a rate cut,” he said. “It suggested a significant slowdown – not a deep one, but enough to justify a cut in the policy rate.”

According to Remolona, another rate cut remains possible before the year ends, with one more policy meeting scheduled in December.

“It’s possible – one more 25-basis-point cut. We’re most likely to do something during a scheduled policy meeting,” he said, while clarifying that an off-cycle move would require “something really bad” in the economic data.

He noted that a 50-basis-point cut would only be considered if indicators of growth or confidence “surprise us on the low side,” which the BSP currently views as a low-probability risk.

Remolona also warned that failure to strengthen the country’s anti-money laundering framework could risk the Philippines’ return to the Financial Action Task Force’s gray list.

“We’re worrying about that, and we’re doing our best. We certainly don’t want to be back on the gray list,” he said. “It took a lot of work to get out of it.”

Despite ongoing investigations, Remolona said the banking system remains sound, with ample capital and liquidity buffers.

“The health of the banking system looks good,” he said. “There’s no sign or risk of an imminent crisis. A crisis is when you begin to see deposit runs and we’re not seeing that.”

The Monetary Board will have its final review this year on Dec. 11.