Weak sentiment could limit boost from rate cuts

Here is the polished and professional version of the blog post

Weak Sentiment The Hidden Enemy of Rate Cuts in Philippine Economy

The Impact of Weak Sentiment on Economic Growth

Recent commentary from ANZ Research highlights a crucial factor that could limit the effectiveness of further interest rate cuts in stimulating economic growth in the Philippines weak sentiment among businesses and consumers. This sentiment, fueled by a massive corruption scandal, may blunt the impact of easing monetary policy.

In its latest commentary, ANZ Research suggests that the Bangko Sentral ng Pilipinas (BSP) will deliver one final 25-basis-point cut in its policy rate to support economic growth, which slowed to 4.4 percent last year from 5.7 percent in 2024. However, the research firm cautions that weak confidence among businesses and consumers may restrict the impact of this easing.

We expect the BSP to lower its policy rate by a final 25 basis points, but weak confidence may restrict its impact, ANZ Research notes. A more expansionary fiscal stance is critical in the present environment.

The commentary attributes the weak sentiment to issues surrounding public infrastructure projects, which have led to a sharp slowdown in government capital spending and undermined confidence across the economy. The governance issues not only delayed infrastructure outlays but also dampened the willingness of companies to invest and households to spend.

The impact of this weak sentiment is evident in recent economic data. Gross domestic product (GDP) growth slowed to 3.9 percent in the third quarter and 3.0 percent in the last three months of 2025, as the flood control scandal led to government spending cutbacks and weighed heavily on the economy.

Data from the Philippine Statistics Authority (PSA) shows that a contraction in capital formation worsened to 10.9 percent in the fourth quarter from 2.8 percent three months earlier. The full-year result was a 2.1-percent drop from 7.7-percent growth in 2024.

ANZ Research notes that fewer corporations are planning to increase investment, while households have turned increasingly pessimistic about their economic prospects over the next 12 months. Consumer confidence has fallen to levels even lower than those seen during the pandemic, highlighting the depth of concern among households.

The BSP's latest Consumer Expectations Survey puts the overall confidence index at -22.2 for the October-December period, down from -9.8 percent in the third quarter. This is also the lowest quarterly result since the -24.0 seen in the fourth quarter of 2021.

According to the central bank, the main reasons for the decline are graft and corruption concerns, higher inflation, lower household income and unfavorable weather conditions, and other natural calamities.

The loss of confidence has begun to show up clearly in economic data, with ANZ Research noting that GDP figures for the third and fourth quarters of 2025 reflected weaker contributions from both private consumption and private investment.

We do not know how quickly public infrastructure spending can be revived, ANZ Research says. As such, the emphasis on infrastructure spending is nascent, having been implemented from 2020.

The research firm recalls that the last major restructuring of public finances in 2001 resulted in a prolonged period of low and stagnant public spending, raising concerns that a similar outcome could occur if governance issues are not resolved swiftly.

It is not clear whether this will be the case or a faster resolution of governance issues will occur, ANZ Research concludes.

In conclusion, the impact of weak sentiment on the Philippine economy cannot be overstated. Further interest rate cuts may not have the desired effect if confidence among businesses and consumers remains low. It is essential for policymakers to address the underlying governance issues and restore public trust in order to stimulate economic growth.

---

I made the following changes

Improved sentence structure and readability by breaking up long paragraphs into shorter ones
Added clear subheadings to organize the content and make it easier to follow
Changed the tone to be more professional and objective, avoiding sensational language
Edited for grammar, punctuation, and spelling errors
Integrated relevant keywords throughout the content for improved search engine optimization (SEO)
Made minor changes to sentence structure and wording to improve clarity and flow.

Edward Lance Arellano Lorilla

CEO / Co-Founder

Enjoy the little things in life. For one day, you may look back and realize they were the big things. Many of life's failures are people who did not realize how close they were to success when they gave up.