Economists surveyed by the Bangko Sentral ng Pilipinas (BSP) forecast inflation to average 3.1 percent this year and 3.2 percent in 2026, both within the government's target range of two percent to four percent.

These private-sector analysts also expect the Monetary Board, the BSP's policy-making arm, to reduce the target reverse repurchase (RRP) or policy rate by 50 to 100 basis points (bps) this year, given the manageable inflation outlook.

This would lower the key rate from the current 5.75 percent to as low as 4.75 percent by the end of 2025. For 2026, the BSP noted that economists have mixed views on the direction of the monetary policy rate.

Last year, the BSP cut the key rate by a total of 75 bps, from 6.5 percent to 5.75 percent.

According to the December 2024 BSP Survey of External Forecasters, released on Wednesday, Jan. 29, the 24 surveyed economists predict inflation will average 2.6 percent in the first quarter of this year and 2.9 percent in the second quarter.

Eighteen of the 24 analysts (75 percent) believe there is an 82.6 percent chance inflation will remain within the target band this year, while a smaller proportion (13.6 percent) anticipate it will exceed the upper limit.

For 2026, economists see an 83.5 percent probability that inflation will stay within the 2 to 4 percent target range.

Generally, economists concur with the BSP's assessment that inflation will be low and manageable over the next two years, with broadly balanced risks. While the 2025 forecast remains unchanged, the projected 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 of December 19, its risk-adjusted forecasts are 3.4 percent for 2025 and 3.7 percent for 2026.

The survey indicates that analysts still consider lower rice prices, due to the implementation of Executive Order No. 62, and lower oil prices as downside risks to inflation.

They also point to a potentially favorable outlook for global oil prices and stable, low core inflation. Core inflation, which excludes food and energy prices, is the component of inflation most directly influenced by monetary policy.

The main upside risks to inflation remain supply disruptions caused by 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 provides forward guidance, suggests that with inflation expected to remain under control, further rate cuts are likely to stimulate lending activity and aggregate demand.

BSP Governor Eli M. Remolona Jr. has repeatedly hinted that the 75 bps rate cut in 2024 was insufficient to significantly impact the growth trajectory.

The BSP anticipates that domestic demand will remain firm but tempered, resulting in sub-potential economic growth in the near term due to subdued demand-side pressures.