Late data stream seen pushing marts

As the calendar turns toward 2026, the economy is expected to receive a seasonal boost from overseas Filipino worker (OFW) remittances, even as global uncertainties linger.

“With the holidays extending into the New Year, the tail-end of increased remittances and their conversion to pesos is expected to provide a temporary liquidity injection, bolstering consumer spending and supporting the peso,” Rizal Commercial Banking Corp. chief economist Michael Ricafort said.

The currency is also expected to receive strong support from typical accounting year-end activities, where businesses may engage in window-dressing to polish financial statements, potentially influencing short-term market sentiment.

Looking ahead, key data releases will offer fresh insights into the nation’s industrial health. Standard and Poor’s Global Philippine Manufacturing Index (PMI), slated for a 2 January release will be closely watched as a barometer of manufacturing activity, especially amid global trade headwinds.

Matching the US Federal Reserve’s measured approach, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona has signaled a potential single 25-basis-point or 0.25 percent rate cut in 2026, following the latest reduction on 11 December 2025.

The cautious outlook aligns with the Fed’s latest projections from 10 December 2025, which anticipate a modest 0.25 percent cut in 2026 and another in 2027, totaling a 0.5 percent reduction over the two years.

Ricafort said the BSP’s strategy appears geared toward maintaining a healthy interest rate differential with the Fed to stabilize the peso exchange rate, curb import prices, and keep inflation in check.

Further BSP rate adjustments could materialize if the peso remains stable or strengthens, global crude oil prices hover near their five-year lows (last seen in February 2021), and headline inflation stays anchored within the BSP’s two to four percent target range through 2026 to 2027.

However, market expectations diverge from official projections. Fed Fund Futures are pricing in more than two 0.25 percent cuts for 2026, roughly double the Fed’s dot plot estimate of just one.

Dovish mood pervades

Ricafort describes the discrepancy as reflecting dovish signals from Fed officials and recent weaker US economic data, which could prompt the BSP to recalibrate if US policy easing accelerates.

A slate of US economic indicators is due in the coming days, though some releases may still face delays from the record 43-day government shutdown that spanned 1 October to 12 November 2025.

The shutdown disrupted data collection, including labor market reports, and its lingering effects — combined with higher US tariffs effective since 7 August 2025 — could weigh on global growth.

Upcoming releases include:

Pending home sales on 29 December, offering a glimpse into housing market resilience;

Federal Open Market Committee releases meeting minutes on 30 December, which may reveal internal debates on future policy;

ADP private sector jobs data on the same day, a precursor to official employment figures;

FHFA House Price Index and broader US home price indices also on 30 December, highlighting real estate trends; and

Weekly jobless claims, already reported on 24 December, which could signal labor market stability.

Deep impact from shutdown

These data points arrive as markets digest the shutdown’s economic drag and tariff impacts, potentially slowing both US and global activity.

The next Fed rate-setting meeting is scheduled for 28 January 2026, with futures markets assigning a 20 percent probability to a 0.25 percent cut from the current 3.5 to 3.75 percent target range.

Odds rise to 38 percent for a cut at the 18 March 2026, meeting, underscoring expectations of more aggressive easing in 2026, over twice the single cut implied by the 10 December projections.

“Market optimism stems from recent dovish Fed commentary, softer employment and economic data (albeit delayed by the shutdown), and the broader slowdown from tariffs and fiscal disruptions,” Ricafort added.

If realized, such cuts could encourage the BSP to follow suit, preserving the peso’s competitiveness and aiding inflation control.

The interplay between US and Philippine policies highlights the global economy’s interconnectedness.

Pressure seen easing

A more dovish Fed could ease pressure on emerging markets like the Philippines, allowing the BSP greater flexibility for growth-supportive measures. Stable oil prices and controlled inflation would further enable this, potentially fostering a virtuous cycle of stronger remittances, manufacturing recovery, and peso stability.

If US data disappoints or the shutdown’s effects prove more protracted, global sentiment could sour, impacting Philippine exports and remittances. Investors should monitor the January PMI and Fed minutes for early 2026 clues.

As the New Year approaches, the economy’s resilience will hinge on navigating these dynamics, with prudent monetary policy as a key anchor, Ricafort concluded.