Remolona: Inflation tamed, growth hit by confidence loss
Bangko Sentral ng Pilipinas Governor Eli M Remolona, Jr. highlighted the country's economic resilience at a Rotary Club meeting in Manila on January 8, 2026. He reported significant progress in taming inflation and a strong banking system, but noted a slowdown in economic growth due to a loss of confidence.
Inflation tamed, banking system robust
Governor Remolona reported significant success in controlling inflation, with the headline rate reaching 1.8 percent in December and 1.1 percent for the bottom 30 percent of households.
While these rates are currently low, projections indicate a rise over the next year.
The Governor also affirmed the robust health of the Philippine banking system, noting a capital adequacy ratio of 16.4 percent, well above the international standard of 10 percent.
Bank liquidity stands at 180 percent, significantly exceeding the 100 percent international benchmark.
Furthermore, the country's international reserves total US$110.9 billion, covering more than seven months of imports, compared to the usual standard of three months, and four times the short-term debt, far surpassing the 100 percent international standard.
Confidence loss weighs on growth
Remolona acknowledged a slowdown in economic growth, projecting 4.6 percent for 2025, a decrease from an earlier 5.7 percent forecast.
This revision is primarily attributed to a loss of confidence and weakened sentiment following a flood control scandal, impacting the economy from Q3 2025. However, a recovery is anticipated, with growth rates projected at 5.6 percent in 2026 and 6.3 percent in 2027. These figures are superior to most regional neighbors, with Vietnam being the sole exception.
Sentiment indicators, including the Purchasing Managers' Index (PMI) which recently bottomed, and the stock exchange, now show signs of recovery after a period of decline.
Easing cycle nears its end
The central bank's December rate cut was a necessary, albeit limited, response to the erosion of public confidence.
Monetary policy, primarily influencing demand, has few tools to address supply-side issues or fully restore sentiment.
This suggests the easing cycle is approaching its natural conclusion, with further significant interventions unlikely to yield substantial results.