Slower inflation, more rate cuts, and faster growth: First look at 2026

Inflation: Locked on target

With the balance of risks shifting toward the downside as rice inflation begins to fade, headline inflation is projected to settle at 3.3% for FY 2024. Metrobank Research forecasts sustained target-consistent inflation levels in FY 2025 and FY 2026 at 3.0%.

We also recognize that upside risks to our call remain, particularly lingering geopolitical tensions in the Middle East and higher oil and energy prices.

Fed Policy Rate: It’s raining cuts

In the last FOMC meeting, the Federal Reserve (Fed) delivered a 50-basis point (bp) cut, signaling a more dovish stance by the Fed. They recognize that inflation has “eased substantially” and the labor market has “cooled from its formerly overheated state.”

We extend our forecast with a 50-bp cut in 2026, which should follow the 100-bp cuts in FY 2024 and FY 2025.

BSP Policy: Easy like Sunday Morning

Given the projected target-consistent FY inflation, Metrobank Research forecasts 50 bps worth of cuts for FY 2026, which should follow the total 75-bp cuts in 2024 and the total 100-bp cuts in 2024. This should bring the BSP’s Target Reverse Repurchase (RRP) rate down to 4.25% by the end of 2026. Rate cuts alongside BSP’s recently announced RR reduction would enhance the BSP’s support for the economy and move the central bank into an easy and accommodative policy.

USD/PHP: Wider differential meets trade deficit

Considering the projected wider interest rate differential (IRD) at 125 bps, Metrobank Research projects a stronger peso, which could end at 53.7 by YE 2026.

GDP: Brighter days ahead

Metrobank Research forecasts strong economic growth in 2026 at 6.2%. We expect recovered private consumption and investment spending, supported by the projected continued monetary easing by the BSP. This view is consistent with Finance Secretary Ralph Recto’s statement that growth targets can be met if rate cuts are delivered.