{"id":17792,"date":"2026-02-24T14:39:49","date_gmt":"2026-02-24T06:39:49","guid":{"rendered":"https:\/\/www.ibon.org\/?p=17792"},"modified":"2026-02-24T14:40:37","modified_gmt":"2026-02-24T06:40:37","slug":"why-interest-cuts-wont-cut-it","status":"publish","type":"post","link":"https:\/\/www.ibon.org\/tl\/why-interest-cuts-wont-cut-it\/","title":{"rendered":"Why interest cuts won\u2019t cut it"},"content":{"rendered":"

The Bangko Sentral ng Pilipinas (BSP) recently cut<\/a> its key policy rates to their lowest in 3\u00bd years as gross domestic product (GDP) growth slowed to 3% in the fourth quarter and 4.4% for 2025\u2014the slowest in 14 years outside of the pandemic\u2014while inflation eased to 1.7% below target.<\/p>\n\n\n\n

In line with orthodox inflation-targeting practice, the Monetary Board lowered the Target Reverse Repurchase (RRP) Rate to 4.25%, with corresponding cuts in overnight deposit and lending rates.<\/p>\n\n\n\n

BSP Governor Eli Remolona Jr admitted<\/a> the cuts will only \u201cdo a little bit,\u201d suggesting that government just spend more and curb corruption. Actually, much more is needed.<\/p>\n\n\n\n

Growth?<\/strong><\/p>\n\n\n\n

The logic that rate cuts will boost slowing growth is straightforward. Lower rates reduce borrowing costs, supposedly encouraging firms to invest and households to spend. Rising asset prices trigger wealth effects, and a weaker peso makes exports more competitive. Confidence is boosted. As the textbook story goes, monetary easing nudges the economy back toward its potential.<\/p>\n\n\n\n

The Philippine Stock Exchange (PSEi) index has already been pushed upward, and the peso downward. But these financial reactions don\u2019t guarantee economic wellness.<\/p>\n\n\n\n

Such measures might work if the problem is cyclical from temporarily weak demand or fragile sentiment. But the Philippine slowdown is structural.<\/p>\n\n\n\n

Households?<\/strong><\/p>\n\n\n\n

Let\u2019s look at the composition of growth. Over the past five years, household consumption accounted for some 73% of demand while services made up about 63% of output. This model produced respectable headline GDP growth numbers, but is self-limiting with growth basically slowing since its 7.1% peak in 2016.<\/p>\n\n\n\n

Household consumption can only grow as fast as household incomes. However, incomes are structurally constrained by the unemployment and poor quality of jobs the economy generates. Official figures understate the true extent of joblessness. Adding official unemployed, unpaid family workers, and estimated discouraged workers dropped from the labor force, the true number of unemployed is likely closer to 6.9 million<\/a> for the whole of 2025.<\/p>\n\n\n\n

Around 37\u201338 million or nearly four-fifths (77%) of 49 million total employed are in low-paid, insecure, and irregular informal work. This includes the self-employed, those working in family farms and businesses and in private households, and IBON\u2019s estimates of informal wage labor.<\/p>\n\n\n\n

About 34.8 million workers or more than 70% of total employment are in backward agriculture, construction, trade, transport, accommodation and food services, and other low-productivity services. These sectors absorb labor, but do not systematically raise wages or productivity.<\/p>\n\n\n\n

Since 2001, labor productivity has risen by 92% but average daily basic pay (ADBP) only grew by 22 percent. When wage growth lags so far behind productivity, the constraint on household demand isn\u2019t the interest rate\u2014it\u2019s purchasing power.<\/p>\n\n\n\n

Cheaper credit can\u2019t substitute for missing incomes. And incomes are missing because jobs are missing, since the economy\u2019s most vital sectors have been hobbled, hindered, and hollowed out by decades of neoliberal globalization.<\/p>\n\n\n\n

Investments?<\/strong><\/p>\n\n\n\n

Hence, a similar structural constraint to the investment response to interest rate cuts. Firms invest if they see expanding market prospects and credible long-term opportunities domestically, in particular, but also abroad.<\/p>\n\n\n\n

Even after six earlier cuts, a 25-basis point reduction won\u2019t stir much spending by firms, seeing how little spending power most Filipinos have, the uncertain global economic situation, and thin domestic supply chains.<\/p>\n\n\n\n

These same considerations have ebbed and flowed for decades, uncontrolled by any serious national development strategy. Manufacturing has fallen to just 17.3% of GDP and agriculture to 7.9%\u2014historic lows. Rate cuts cannot reverse decades of structural erosion.<\/p>\n\n\n\n

Construction has accounted for roughly 62% of gross capital formation over the past two decades. Rate cuts could marginally spur infrastructure and real estate spending to lift GDP and create short-term jobs. But without sustained investment in machinery, equipment, and manufacturing capabilities, productivity gains remain shallow and temporary.<\/p>\n\n\n\n

Against this structural backdrop, lower interest rates will more likely just reinforce the same underdevelopment pattern. There could be more construction and property activity, and perhaps a little more short-term consumption spending, but no real deepening of productive capacity.<\/p>\n\n\n\n

In short, monetary easing can increase economic activity. But momentary activity is not the same as transformation.<\/p>\n\n\n\n

Government?<\/strong><\/p>\n\n\n\n

But the fiscal boost imagined is also not likely to come, given the invisible but suffocating grip of global financial markets on the government\u2019s fiscal spigots. The Marcos Jr administration is so keen to reduce its deficit that the projected 7.2% growth in disbursements in 2026 is targeted to fall to 4.3% next year.<\/p>\n\n\n\n

The revenue side of the deficit problem are the tax cuts on richer families and large corporations under the regressive TRAIN, CREATE, and CREATE MORE tax laws. It is also due to government\u2019s refusal to tax more progressively, such as with billionaire wealth or windfall property value taxes.<\/p>\n\n\n\n

On the spending side, among the biggest expense items is debt service. Of the Php8.45 trillion in gross borrowing by the current administration as of late 2025, a huge 75% of this has gone to interest payments and principal amortization rather than new development spending. Yet, national government debt continues climbing and has reached 63.2% of GDP.<\/p>\n\n\n\n

This self-inflicted narrowing of fiscal space limits the government\u2019s ability to complement monetary easing with strategic public investment and spending.<\/p>\n\n\n\n

Is the BSP governor talking about more infrastructure spending? This has reached historic highs at Php4.9 trillion or some 6.2% of GDP in the super-pork years 2023\u20132025. Yet the economy\u2019s underlying production structure remains shallow and falling.<\/p>\n\n\n\n

More!<\/strong><\/p>\n\n\n\n

The deeper problem is the absence of a productive base in modern agriculture and manufacturing that raises productivity and supports stable wage employment. Instead, growth relies on remittances, services, and public spending\u2014none of which can sustainably drive transformation.<\/p>\n\n\n\n

Interest rate cuts could cushion shocks, along with any increases in government spending, overseas remittances, or service-driven employment. But without agricultural modernization, national industrialization, universal social services, and stronger labor incomes, the economy will remain structurally shallow. Until the Marcos Jr administration\u2019s economic policies cut to the heart of the matter\u2014nationalist development strategies to improve the structure of production and democratically distribute incomes\u2014interest rate cuts really just won\u2019t cut it.<\/p>","protected":false},"excerpt":{"rendered":"

FEATURES<\/p>\n

Until the Marcos Jr administration\u2019s economic policies cut to the heart of the matter, interest rate cuts really just won\u2019t cut it.<\/p>","protected":false},"author":13,"featured_media":17795,"comment_status":"open","ping_status":"open","sticky":false,"template":"single-nosidebarbanner.php","format":"standard","meta":{"_acf_changed":false,"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[2048,3],"tags":[258,4180,4179,3121,2972,116,1794],"class_list":["post-17792","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-banner","category-features","tag-economic-growth","tag-interest-cuts","tag-interest-rate-cuts","tag-interest-rates","tag-marcos-jr-administration","tag-philippine-economy","tag-slowing-growth","wpautop"],"acf":[],"publishpress_future_action":{"enabled":false,"date":"2026-07-23 19:24:43","action":"change-status","newStatus":"draft","terms":[],"taxonomy":"category","extraData":[]},"publishpress_future_workflow_manual_trigger":{"enabledWorkflows":[]},"_links":{"self":[{"href":"https:\/\/www.ibon.org\/tl\/wp-json\/wp\/v2\/posts\/17792","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.ibon.org\/tl\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.ibon.org\/tl\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.ibon.org\/tl\/wp-json\/wp\/v2\/users\/13"}],"replies":[{"embeddable":true,"href":"https:\/\/www.ibon.org\/tl\/wp-json\/wp\/v2\/comments?post=17792"}],"version-history":[{"count":3,"href":"https:\/\/www.ibon.org\/tl\/wp-json\/wp\/v2\/posts\/17792\/revisions"}],"predecessor-version":[{"id":17798,"href":"https:\/\/www.ibon.org\/tl\/wp-json\/wp\/v2\/posts\/17792\/revisions\/17798"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.ibon.org\/tl\/wp-json\/wp\/v2\/media\/17795"}],"wp:attachment":[{"href":"https:\/\/www.ibon.org\/tl\/wp-json\/wp\/v2\/media?parent=17792"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.ibon.org\/tl\/wp-json\/wp\/v2\/categories?post=17792"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.ibon.org\/tl\/wp-json\/wp\/v2\/tags?post=17792"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}