A further reduction in the Bangko Sentral ng Pilipinas’ (BSP) target reverse repurchase (RRP) rate is once again “on the table” this February, BSP Governor Eli M. Remolona Jr. said yesterday.

Speaking at the Tuesday Club’s first meeting for 2026 at EDSA Shangri-La, Remolona said the possibility of a February rate cut remains open when asked if further easing was likely.

“It’s on the table,” he said, later qualifying that the scenario, however, remains “unlikely.”

Primary tool for managing liquidity

The RRP is the BSP’s primary policy tool for managing interest rates and liquidity in the financial system. When banks have excess cash, they may park these funds with the BSP overnight or for short tenors through the RRP facility, earning interest at the prevailing RRP rate. This rate serves as the benchmark policy interest rate in the Philippines.

By adjusting the RRP, the BSP influences borrowing costs, liquidity conditions, and overall economic activity. A lower RRP reduces the cost of borrowing, encouraging investment and consumer spending — key drivers of growth in an economy heavily reliant on consumption.

Rate decisions are guided by the central bank’s assessment of inflation trends, domestic demand, and global economic conditions. While increased liquidity can eventually fuel inflation, price pressures remain manageable, according to the BSP.

2025 headline inflation at 1.7 percent

The Philippine Statistics Authority reported yesterday that average headline inflation for 2025 settled at 1.7 percent, well below the BSP’s 2 to 4 percent target range. Inflation in December stood at 1.8 percent, within the BSP’s projected range of 1.2 to 2.0 percent for the month.

“1.8 [percent] is a welcome number. It’s a low, reasonably low inflation rate,” Remolona said. “In our projections, it will go up a bit in 2026, but stay within the 2 to 4 percent range,” he added.

The BSP’s December rate cut was heavily influenced by the economic slowdown following the flood control corruption scandal, which dragged 2025 GDP growth down to 4.6 percent.

“The cut will revive economic activity a bit at a time when painful governance issues around infrastructure investments have weakened government spending, business confidence and domestic demand,” Remolona said in December.

Undertarget inflation signals weak consumer demand

While under-target inflation supports household purchasing power, it also signals weak consumer demand. This is reflected in the BSP’s latest consumer confidence survey, which showed broad pessimism amid governance and corruption concerns surrounding the Marcos Jr. administration.

With household consumption accounting for about 76 percent of Philippine GDP in 2024, investors are closely watching for further monetary easing. A report released today by Metropolitan Bank & Trust Company (Metrobank) said it expects the BSP to gradually lower the RRP toward a terminal rate of 4.00 percent by end-2026, the lowest since August 2022.

“Within-target inflation, together with still-soft economic activity and subdued consumer and investor sentiment should provide leeway for the BSP to reduce the policy rate further to its terminal rate,” Metrobank said.

Two more rate cuts 1st half 2026

Meanwhile, Bank of the Philippine Islands Lead Economist Jun Neri said he expects two additional rate cuts in the first half of the year.

“We see the scope for additional rate cuts from the BSP in the coming months given the favorable inflation outlook, with two cuts in the first half of 2026,” he said.

“That said, we agree with the view that the BSP’s current easing cycle may end this year, as the central bank has already delivered substantial rate cuts over the past two years,” Neri added.