Waiting for cheaper loans? Don’t bet on big BSP rate cuts this year

Insider Spotlight

• BSP Governor Eli Remolona Jr. says policy rates are near desired levels
• Bank lending growth tilts toward corporates, with long-term loans more sensitive
• December inflation seen as “welcome,” outlook stays within target range
• External shocks like Venezuela have only modest short-term impact

Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. on Tuesday signaled limited room for further policy rate adjustments in 2026 despite a benign inflation rate environment, reiterating the regulator’s mantra that any action will be data dependent.

“I can say that we’re very close to where we want to be in terms of the policy rate,” he said. “There’s a chance that we may cut some more. There’s also a chance that we may not move at all. But there’s not a lot of probability that we will raise in 2026.”

The central bank chief made his comments during a roundtable discussion with the Tuesday Club weekly breakfast fellowship in Mandaluyong City on Jan. 6, 2025.

Why it matters

The BSP’s policy rates determine the borrowing rates for companies and consumers across the Philippine economy.

Its current stance suggests a cautious approach as officials balance subdued inflation against uneven loan demand and external uncertainties.

Eli Remolona Jr.

The central bank chief says current interest rates are near where BSP needs them to be... barring any nasty surprises.

What he’s saying

Remolona said lending has edged up but remains concentrated in corporate borrowing.

“Bank lending is up a bit at the same time, it’s mostly corporate lending,” he said, adding that banks’ lending decisions hinge on their growth expectations.

“If infrastructure investments are not what we thought they were, the future growth is lower than we thought it would be, and that would affect bank loans, especially what we call ‘term loans’ to corporations,” Remolona said.

Inflation check

Inflation data for December 2025 came in lower than expected, which he welcomed, adding that projections show inflation rising slightly in 2026 but remaining within the 2-4 percent target range.

Policy outlook

Pressed on the likelihood of multiple interest rate cuts, Remolona was blunt.

“It looks like either there will be none or (just) one more time,” he said, explaining that, for the central bank to cut rates twice more this year, things would have to be "worse than we thought, possibly prompted by “a bad surprise in the data.”

Growth watch

The BSP currently forecasts economic growth at 5.4 percent in 2026. If growth dips below 5 percent, Remolona said that could justify another rate cut beyond what markets have priced in.

External risks

Addressing geopolitical uncertainty tied to Venezuela, the central bank chief downplayed any immediate effects.

“The short term impact is very small,” he said, noting the Latin American nation’s limited oil exports. The peso also dipped only slightly, he noted.

Bottom line

With inflation subdued and growth holding near expectations, the BSP is signaling patience, keeping its options open but leaning toward stability unless data materially worsens.