With inflation within the target range for 2024 and projected to remain so in 2025, economists polled by the Manila Bulletin expect the Bangko Sentral ng Pilipinas (BSP) to continue reducing key borrowing costs this year.
Despite headline inflation rates increasing incrementally month-on-month, private-sector economists monitoring the Philippines anticipate that inflation further accelerated last month but remained within the government’s target range.
All forecasts for December's headline inflation converge around 2.6 percent, slightly higher than November's 2.5 percent. This figure still falls within the lower half of the government’s two- to four-percent target band.
The Philippine Statistics Authority (PSA) will release the December consumer price index (CPI) report on Tuesday, Jan. 7.
According to Carlo Asuncion, chief economist at Union Bank of the Philippines, the slight inflation increase in December can be attributed to seasonal demand, primarily driven by food items, especially "noche buena" products, which typically experience cyclical price increases.
Other economists who cited similar factors include Jonathan Ravelas, senior advisor at Reyes Tacandong & Co. and managing director of e-Management for Business and Marketing Services; Patrick M. Ella, chief economist at Sun Life Investment Management and Trust Corporation; and Sarah Tan, economist at Moody’s Analytics.
Both Ravelas and Tan also factored in higher electricity and fuel costs.
Ser Percival K. Pena-Reyes, director at the Ateneo Center for Economic Research and Development, projected the highest inflation rate for December at three percent.
Overall, Asuncion projected that 2024 inflation would average 3.2 percent, echoing the majority of expectations.
“Average inflation for 2024 is at the midpoint of the BSP’s inflation target, and we expect 2025 inflation to be slower at three percent at this point,” Asuncion said. This anticipated slowing of inflation could prompt the central bank to continue its easing cycle this year.
Continued easing
“We think that 75 bps [basis points] for the year may not be too ambitious for the BSP,” Asuncion said, following BSP Governor Eli M. Remolona Jr.'s statement that a 100 basis-point reduction for this year may be “a bit much.”
Asuncion leans towards gradual rate cuts over a single reduction, noting the BSP’s “more cautious” approach in its Dec. 19 Monetary Board meeting compared to the previous one. This, along with external developments and further economic trends, “will dictate” the extent of monetary policy easing.
On the other hand, Ella asserted that he does not see the central bank “cutting with the Fed [U.S. Federal Reserve] but more in line with domestic data developments.”
He now expects the BSP to implement three rate cuts totaling 75 basis points (bps), down from his earlier forecast of four cuts amounting to 100 bps. This adjustment, according to Ella, follows the latest monetary policy briefing.
Similarly, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corporation, forecasts 50 to 75 bps cuts this year, which he expects to be carried out gradually.
Ricafort also noted that Remolona earlier signaled cautious rate cuts in 2025, favoring gradual easing while keeping rates slightly restrictive to guard against inflation risks.
Tan shared a similar projection that easing will continue this year. “However, the BSP will be prudent in monitoring global developments that could reinflate inflation and weaken the peso,” he added.
Trump-linked risks
“There are upside risks on the horizon, particularly regarding the uncertain impacts of the Trump administration on local inflation, including Overseas Filipino Worker (OFW) remittances in the new year,” Asuncion said.
However, Asuncion said inflation could drop to 2.3 percent in the first quarter of 2025 before rising to the upper half of the BSP’s target range by June, with low base effects potentially pushing it near the upper limit.
Tan also cited risks associated with Trump's return, including possible US tariffs and a slower pace of global interest rate adjustments.
“These will play into the BSP’s decision to loosen monetary policy further next year,” Tan stressed.
Ricafort further affirmed this expectation that Trump’s possible protectionist policies, including higher tariffs, tighter immigration rules, tax cuts, and economic stimulus measures, could drive higher US inflation, wider budget deficits, and rising bond yields.
“All of which could potentially lead to fewer Fed rate cuts, which could also lead to fewer local policy rate cuts,” Ricafort explained.