Forecasts BSP rate cuts, steeper yield curve and a GDP rebound
Metrobank Chief Economist and Markets Strategist Nicholas Mapa outlined five key themes for the Philippine economy, projecting potential rate cuts by the Bangko Sentral ng Pilipinas (BSP) as early as December, and a steeper yield curve as the country anticipates a recovery of growth momentum in 2026.
The forecasts were presented during Metrobank’s 2025 Market Movers series, an exclusive economic briefing for Metrobank clients, which carried the theme, “Trump, Tariffs, and the Terminal Rate: The New Global Order.” The sessions, designed for Private Wealth and corporate clients, offered expert perspectives to navigate a shifting global financial landscape. To deliver world-class insights, Metrobank partnered with CreditSights and BMI, both research firms under the global credit rater Fitch, to deliver world-class research and analysis.
Mapa projected a two-pronged boost to growth for 2026: a return of public construction and the delayed effects of monetary easing.
Here are his 5 market calls on the Philippine economy for 2026:
- Philippine Gross Domestic Product (GDP) growth: The temporary “fiscal freeze” this year may affect growth in the near term. But this is expected to gradually recover next year as capital formation and investments start to gain back momentum to fuel the country’s growth.
- Inflation: Consumer price index gains are expected to pick up in 2026 and approach the BSP’s 4% target ceiling by mid-year after inflation fell below target this year. This upward pressure will be driven mainly by base effects on top of potential increases in global commodity prices, possibly fanned by US-imposed tariffs. Nonetheless, average full-year inflation is still expected to remain within the BSP’s 2-4% target.
- BSP Policy Rates: The Monetary Board of the BSP is seen to remain dovish following the expected rate cut in December even as inflation is expected to trend close to 4% by mid-2026. The central bank has cut a total of 175 basis points from its peak of 6.50% after its fifth policy meeting this year last October 9, bringing the benchmark interest rate to 4.75%. With the price stability mandate still within reach, BSP will likely stay focused on supporting sagging growth momentum.
- Yield curve: The Philippine yield curve is expected to steepen with BSP cutting rates, which should keep a lid on short-end rates. Meanwhile, long-term yields could edge higher as the government extends its borrowing to the 10-year maturity range and inflation gradually rises. Conversely, expectations of further rate cuts will drive short-term yields lower.
- The Peso: A weak dollar story may continue next year as the U.S. Federal Reserve maintains its own rate-cutting cycle. Philippine-specific factors however should translate to sustained pressure on the PHP as the economy is slated to run a current account deficit in 2026 and 2027.
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