As manufacturers experience only mild producer price inflation, central banks in emerging markets (EMs), including the Philippines, are expected to cut interest rates some more in the near term.

“Encouragingly, the price components of the PMIs [purchasing managers’ indices] fell again in June. This should provide further room for EM central banks to further lower interest rates to support weak growth outlooks,” Capital Economics research assistant Jack Oatley said in a July 1 report.

S&P Global reported earlier that the Philippines’ manufacturing PMI rebounded to 50.7 in June from 50.1 in May, sustaining growth even as Oatley noted that for most of Asian EMs, “PMI readings have remained relatively weak and in contractionary territory in most.”

In the case of the Philippines, S&P Global had cited “historically subdued” and “waning” inflationary pressures in the costs shouldered by local manufacturers.

Last month, “rates of both input price and output charge inflation were slightly slower than seen in May,” according to S&P Global, adding that “where input prices were raised, this was primarily linked... to higher material costs.”

In a June 30 report, Capital Economics senior Asia economist Gareth Leather and deputy chief EMs economist Jason Tuvey noted that “inflation in the Philippines has fallen back sharply and is likely to remain low over the coming year.”

Headline inflation averaged 1.9 percent at end-May, and the Bangko Sentral ng Pilipinas (BSP) expects the annual rate of increase in prices of basic goods and services to have remained below two percent last month. The consumer price index (CPI) inflation report for June will be out on Friday, July 4.

“With inflation set to stay low, we expect more easing before the end of the year,” Capital Economics said. The think tank had forecast another 50 basis points (bps) in BSP rate cuts to bring the policy rate down to 4.75 percent from 5.25 percent at present.

“We expect GDP [gross domestic product] growth in the Philippines to remain relatively strong in 2025, helped by policy loosening from the central bank,” the think tank said.

This was despite Capital Economics having lowered its own 2025 GDP growth forecast for the Philippines to 5.3 percent, which is below the government’s downgraded target of 5.5 to 6.5 percent for the year.