1 month ago
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Economists surveyed by the Bangko Sentral ng Pilipinas (BSP) have a mean forecast of 3.1 percent inflation for this year and 3.2 percent in 2026, both projections are within the government target range of two percent to four percent.
The same private sector analysts also expect the BSP’s policy-making arm, the Monetary Board, will reduce the target reverse repurchase (RRP) or policy rate by 50 basis points (bps) up to 100 bps this year with a manageable inflation outlook. This will cut the key rate from the current 5.75 percent to as much as 4.75 percent by the end of 2025.
As for 2026, the BSP said economists have mixed views on the direction of the monetary policy rate.
Last year, the BSP cut the key rate by a combined 75 bps from 6.5 percent to 5.75 percent.
Based on the December 2024 BSP Survey of External Forecasters released on Wednesday, Jan. 29, the 24 economists surveyed said that for the first quarter this year, inflation will likely average at 2.6 percent and higher at 2.9 percent for the second quarter.
About 18 out of 24 analysts believe there is an 82.6 percent chance that inflation will settle within the target band this year, while a smaller probability or 13.6 percent of economists said inflation will breach the upper end of the target range.
For 2026, economists indicated an 83.5 percent probability that inflation will remain within the target range of two percent to four percent.
Generally, economists agree with the BSP that inflation will be low and manageable in the next two years amid broadly-balanced risks.
While the forecast for 2025 has remain unchanged, the inflation path for 2026 is expected to move closer to the midpoint of the target.
The BSP’s latest baseline inflation forecasts are 3.3 percent for 2025 and 3.5 percent for 2026. As for its risk-adjusted forecasts, as of Dec. 19, these are 3.4 percent for 2025 and 3.7 percent for 2026.
Based on the survey, analysts still think the downside risks to the inflation outlook will come from the lower rice prices with the implementation of Executive Order No. 62, and lower oil prices.
They also point to an emerging favorable outlook for global oil prices and the stable and low core inflation. Core inflation, which does not include food and energy, is the component of inflation influenced by monetary policy.
The main upside risks to inflation continue to be supply disruptions due to geopolitical tensions and adverse weather conditions. “The potential spike in electricity rates, higher-than-expected wage adjustments, and protectionist US trade policies were also identified as upside risks,” said the BSP.
The BSP’s latest December 2024 Monetary Policy Report (MPR), which serves as its forward guidance, has signaled that because inflation is expected to be controlled, more rate cuts are coming to boost lending activity and output demand.
BSP Governor Eli M. Remolona Jr. has broadly hinted a number of times that even with a 75 bps rate cut in 2024, this was not enough to have any major impact to the growth trajectory.
The BSP expects the domestic demand will remain firm but tempered, which means the economy will grow below potential over the near term due to subdued demand-side pressures.
