Floodgate fallout reshapes BSP outlook

The Bangko Sentral ng Pilipinas (BSP) has revised its 2026 forecasts for both gross domestic product (GDP) growth and headline inflation in light of recent economic data, particularly the softer-than-expected fourth-quarter and full-year 2025 growth rates attributed to the ‘floodgate’ scandal.

Speaking at the central bank’s monetary policy meeting on Thursday afternoon, BSP Deputy Governor Zeno Ronald R. Abenoja said that, given current economic conditions, the central bank now forecasts inflation for 2026 at an average of 3.6 percent.

“In the last policy meeting in December, the forecast was an average inflation rate of 3.2 percent for 2026 and 3 percent for next year, 2027. We now see inflation increasing slightly to a 3.6 percent average for this year, but it will gradually go down and move closer to the 3 percent target at an average of 3.2 percent by 2027,” he said.

Headline inflation — the average rise in prices over a given period — rose by 2.0 percent in January, up 0.2 percentage points from the previous month. The January figure fell within the BSP’s projected range of 1.4 to 2.2 percent, driven by higher prices of housing, water, electricity, gas and other fuels, as well as restaurants and accommodation services.

Abenoja, who serves as Deputy Governor of the Monetary and Economics Sector, noted that the upward pressures, particularly from oil and rice prices, were key drivers of the forecast revision. He added that base effects from these increases may subside over time.

“As the Governor has emphasized, these major factors are mostly supply-side factors and the impact may not be persistent. It could fade away after some period of time,” he said.

The manageable inflation level played an essential role in the Monetary Board’s decision to reduce the BSP’s target reverse repurchase rate (RRP). Lowering the key policy rate aims to stimulate economic growth by encouraging banks to inject more liquidity into the economy, amid another corruption-related economic slowdown.

Full-year 2025 growth fell to 4.4 percent — down 1.3 percentage points from the previous year and well below the national target of 5.5 to 6.5 percent. Economists, government agencies, and the central bank attributed the shortfall largely to the fallout from the ongoing flood control infrastructure scandal.

In January, BSP Governor Eli M. Remolona Jr. said central bank data at the time projected 2025 growth at 4.6 percent, citing weakened investor confidence due to governance issues. The BSP had previously projected 2026 growth at 5.4 percent — a figure Abenoja said has now been revised downward to 4.6 percent in light of the weaker 2025 performance.

“We are very much committed to how we look at the sentiment of states in terms of numbers for economic activity moving forward. For 2026, we hope that the growth numbers will be better than what we saw in the second half of last year,” he said.

“So it’s 4.6 average GDP growth for 2026, [and] 5.9 [percent] for 2027,” Abenoja added.

Remolona underscored that restoring investor confidence is imperative for an economic rebound in the second half of 2026.

“We didn't think the Q4 number would be so low, and that told us that actually confidence plays a bigger role than we thought. When the flood control scandal broke out, we recalibrated our models to take account of confidence. I think the recalibration wasn't enough to anticipate what would happen, but now we have some further work to do, and we now realize that it's a bigger factor,” he said.

At the time of press, only former Senator Ramon “Bong” Revilla Jr., government contractor Sarah Discaya, and several Department of Public Works and Highways officials have been formally charged in connection with anomalous flood control projects. Meanwhile, fugitive former lawmaker Zaldy Co remains at large, with Interior and Local Government Secretary Jonvic Remulla stating earlier this week that Co’s last known trail led to Sweden, According to Remulla, the Department of Foreign Affairs is expected to handle his repatriation should he be located.