Despite lingering upside risks to inflation, China Banking Corp. (Chinabank) expects the Bangko Sentral ng Pilipinas (BSP) to conclude its rate-hiking cycle this August, arguing that second-round inflation effects have largely dissipated.

The projection follows a third consecutive month of decelerating headline inflation, which dropped to 6.2 percent in July. Data from the Philippine Statistics Authority (PSA) showed that rate eased from 6.4 percent in June and down from a peak of 7.2 percent in April.

According to the Department of Economy, Planning, and Development (DEPDev), the continued moderation was chiefly driven by transport inflation, which eased to 11.9 percent in July from 12.8 percent in June as fuel prices fell and supply conditions improved.

Core inflation—which strips out volatile food and energy items—edged down to 4.2 percent from 4.4 percent the previous month, signaling a cooling in underlying price pressures.

Year-to-date, headline inflation averaged 5.0 percent, remaining above the government’s 4.0 percent target ceiling.

Even with the lower figures, Chinabank Research warned that a price resurgence remains possible.

“Despite encouraging figures, we think it is too early to conclude that a sustained disinflation trend has taken hold,” the bank stated.

“We expect inflation to pick up in the fourth quarter,” it added, noting that base effects should keep any rebound below the April peak.

“Despite this extended [inflation] rebound, we believe the BSP is likely to end its rate-hiking cycle this month, as second-round inflation effects appear to have largely run their course,” Chinabank wrote in an Aug. 5 commentary.

The BSP raised key borrowing costs to 4.75 percent in June—the second rate hike since Middle East hostilities erupted in late February.

The Monetary Board will hold its fourth policy meeting of the year on Aug. 27, with subsequent sessions scheduled for Oct. 22 and Dec. 17.

With price risks appearing to fade, local monetary authorities are expected to pivot away from a hawkish stance toward a more dovish tilt, signaling reduced concern over immediate price stability.

Meanwhile, Metropolitan Bank & Trust Co. (Metrobank) expects the central bank to maintain a restrictive stance without resorting to aggressive moves.

“We maintain our expectation for the BSP to carry out measured rate increases,” Metrobank said. “The downward trajectory [of inflation] suggests that the BSP was correct in holding off on overly aggressive rate tightening. We expect the BSP to continue this pace as BSP Governor Eli M. Remolona Jr. balances the fight against inflation with support for growth.”

The BSP projects inflation to settle at 6.4 percent this year and 4.5 percent in 2027—both well above the government's target ceiling.

Growth concerns are also mounting following lackluster economic performance in recent quarters.

Frankfurt-based Deutsche Bank AG is pricing in a post-pandemic low, projecting that sluggish state spending and rising import costs dragged Philippine gross domestic product (GDP) growth down to 2.5 percent in the second quarter—a further slowdown from 2.8 percent in the previous quarter.