Monetary policy: Wake-up call to Malacañang and Congress

PHILIPPINES - In Brief 23 Feb 2026 by Diwa Guinigundo

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Last week, the Bangko Sentral ng Pilipinas (BSP) reduced its policy rate by another 25 basis points, extending its easing cycle amid slowing growth and inflation that remains within the 2%–4% target band. On paper, the move is well supported by macroeconomic conditions. Yet the decision also highlights the inherent limits and responsibilities embedded in flexible inflation targeting. Despite substantial cumulative rate reductions, economic momentum has yet to respond decisively. Private consumption remains soft, business confidence weak and tentative, and investment activity highly uneven. More tellingly, the transmission of monetary easing has been constrained by the behavior of the banking system itself. Banks have acted pro-cyclically: even as the BSP adopted a substantially accommodative stance, many institutions tightened their credit standards, reflecting heightened risk aversion and balance sheet caution. Such tightening dampens loan growth precisely when credit support is most needed, muting the intended stimulus of lower policy rates. This dynamic underscores a central reality — monetary policy cannot compel risk-taking or override structural constraints. Logistics inefficiencies, supply bottlenecks, regulatory uncertainty, and external vulnerabilities continue to weigh on growth. Interest rate adjustments alone cannot resolve these deeper impediments. This much the Governor of the BSP Eli Remolona admitted, literally challenging the fiscal and other executive agencies of Government to do heavier lifting in economic revival. Otherwise, as we are seeing today, monetary policy could just be pushing on a string. At the same time, inflation risks have not disappea...