Following the 25-basis-point reduction in the Bangko Sentral ng Pilipinas’ (BSP) key rates last week, a Fitch Solutions Company unit forecasts an additional cut in December, and more in 2026, to support the domestic economy.

With the rate reduction last Oct. 9, the BSP’s target reverse repurchase (RRP) rate is now at 4.75 percent, reduced by a total of 175 basis points since 2024, with the 100 basis points in the first nine months of this year alone.

“We maintain our forecast of 50 bps (basis points) in cuts in 2026 with inflation remaining soft,” BMI said in a report sent to journalists Monday.

A lower interest rates make borrowing costs cheaper, thus encouraging lending, which in turn boosts economic activity and domestic growth.

Last September, the rate of price increases accelerated to 1.7 percent from month-ago’s 1.5 percent, due to the impact of weather disturbances on food prices.

Amidst the uptick, average inflation in the first nine months this year stood at 1.7 percent, below the central bank’s 2 to 4 percent.

In the report, BMI cited a “more dovish tone” after the policy rate cut announcement, noting BSP Governor Eli Remolona’s statement about having the “scope for a more accommodative monetary policy stance” and the “favorable inflation outlook and moderating domestic demand.”

“As such, we now expect BSP to cut by 25bps at its final meeting in 2025 in December to 4.50 percent and by another 50 bps in 2026,” it said.

BMI forecasts a domestic growth of around 5.4 percent this year, below the economic manager’s 5.5 percent to 6.5 percent target.

It noted in the report risks such as the volatile business sentiment due to investigation on the government’s flood control projects, decline in the Philippine Stock Exchange index (PSEi), and the slowdown in merchandise exports.

Exports rose 4.6 percent on an annual basis last August from 17.6 percent in the previous month, which authorities traced partly to the impact of US’ tariff policies. (PNA)