Inflation seen within target until 2026

Private sector analysts surveyed by the Bangko Sentral ng Pilipinas (BSP) still expect headline inflation to remain within the 2-4% target band until 2026.

In its Monetary Policy Report from its October meeting, the central bank said that economists’ inflation expectations “remain well-anchored.”

The BSP’s survey of external forecasters for October showed that the mean inflation forecasts for 2024 and 2026 were unchanged at 3.4% and 3.2%, respectively, compared with September forecasts.

Meanwhile, the mean inflation forecast for 2025 was trimmed to 3% from 3.1% previously.

“Analysts consider the inflation risks to be broadly balanced, with headline inflation expected to remain low and within-target over the policy horizon,” the BSP said.

The BSP’s baseline forecasts see inflation settling at 3.1% this year, 3.2% in 2025 and 3.4% in 2026.

Headline inflation picked up to 2.3% in October, bringing the 10-month average to 3.3%.

The central bank said that the balance of risks to the inflation outlook for 2025 and 2026 shifted to the upside but will likely continue to remain within target.

“Inflation is expected to settle near the low end of the target band due to the impact of reduced tariffs on rice imports,” it said.

An executive order that slashed tariffs on rice imports to 15% from 35% until 2028 took effect in July.

“However, by the second half of 2025, inflation could rise toward the upper end of the target range, largely due to positive base effects,” it added.

It also noted that the upside risks are mainly due to “potential adjustments in electricity rates and higher minimum wages in regions outside Metro Manila.”

“Meanwhile, downside risks continue to be linked to the impact of lower import tariffs on rice,” the central bank said.

“Nevertheless, after incorporating the impact of these risks at their assigned probabilities, the risk-adjusted inflation forecasts remain within the 2-4% target range over the policy horizon.”

The BSP said the inflation outlook and inflation expectations allow it to adopt a “less restrictive monetary policy” stance.

“Nonetheless, the monetary authority will continue to closely monitor the emerging upside risks to inflation, including geopolitical factors.”

The Monetary Board is set to have its last policy review for the year on Dec. 19. BSP Governor Eli M. Remolona, Jr. has said it is possible to deliver a 25-basis-point (bp) rate cut at the meeting.

The central bank has reduced interest rates by a total of 50 bps since August or when the BSP kicked off its cutting cycle.

Growth

Meanwhile, the BSP expects gross domestic product (GDP) growth to remain resilient.

“The Monetary Board also expects domestic economic growth to continue to be strong,” it said.

“This reflects improved prospects for household income and consumption, investments, and government spending, which are supported by the start of the monetary easing cycle in August and the announced reduction in reserve requirements in October.”

In the nine-month period, GDP averaged 5.8%. To meet the lower end of the government’s 6-7% goal, the economy must grow by at least 6.5% in the fourth quarter.

“This outlook is supported by the policy interest rate reduction in August and the reduction in reserve requirements in October,” the BSP said.

“The forecast is consistent with the small negative output gap in 2024 and 2025, which is expected to turn positive in 2026. The steady upturn in the output gap reflects improved prospects for household consumption, investments, and government spending.” — Luisa Maria Jacinta C. Jocson