A slightly higher inflation rate that remains below two percent in June would allow the Bangko Sentral ng Pilipinas (BSP) to cut interest rates some more in August, economists said.

In a June 27 report, Deutsche Bank Research economist Junjie Huang said headline inflation could have inched up to 1.6 percent year-on-year in June as electricity prices enjoyed low-base effects. To recall, inflation in May fell to a five-and-a-half-year low of 1.3 percent.

The government’s report on June’s consumer price index (CPI) inflation will be out on Friday, July 4.

With inflation expected by the BSP to average 1.6 percent this year, and the Marcos Jr. administration’s economic managers narrowing the 2025 target band of annual price hikes deemed manageable and conducive to economic growth to two to three percent from up to four percent previously, “we maintain our view of another 25-basis point (bp) BSP rate cut in August,” to bring the policy rate down to five percent from 5.25 percent at present, Huang said. The next policy-setting of the BSP’s Monetary Board (MB) will be on Aug. 28.

Deutsche Bank Research had forecast Philippine inflation to average 1.9 percent this year.

As the Philippines would spend more “to tackle the headwinds to growth,” Huang said Deutsche Bank Research expects a 2025 budget deficit equivalent to 5.6 percent of gross domestic product (GDP), a bit bigger than the government’s adjusted program of 5.5 percent of GDP.

In a June 26 report, Dutch financial giant ING also forecast June inflation at 1.6 percent, “primarily driven by the surge in global oil prices following the Iran-Israel conflict, resulting in domestic fuel price hikes.”

“However, the increase in domestic fuel prices should be temporary and local pump prices are expected to fall in July,” ING said.

Capital Economics senior Asia economist Gareth Leather has the same forecast as Deutsche Bank Research and ING, while Moody’s Analytics economist Sarah Tan has projected a lower 1.4 percent.

Moody’s Analytics said in a June 27 report that while Philippine merchandise exports jumped 15.1 percent year-on-year in May amid higher electronics sales overseas, “uncertainties in the global trade environment continue to cloud the country’s trade outlook for the year.” The government last week projected goods exports to decline by two percent in 2025 “largely due to slower global demand and heightened trade policy uncertainties.”