BSP may slow rate cuts as inflation floor emerges
Inflation may have touched its lowest point in July, economists said, with signs it could soon edge higher as the drag from cheaper rice begins to fade.
That shift could leave the Bangko Sentral ng Pilipinas (BSP) treading more carefully on interest rates, wary that cutting too aggressively might leave the economy vulnerable to sudden price shocks that could trigger a tightening of monetary policy.
In a commentary, Jun Neri, lead economist at Bank of the Philippine Islands, said a more conservative approach to easing could also create more room for another reduction to banks’ reserve requirements.
“This is consistent with the recent tone of its statements, which suggest that the pace of easing will be slower moving forward. It will likely depend on the level of economic growth in the quarters ahead,” Neri wrote.
“If the BSP decides to cut further in 2026, the central bank will likely do this in the first half of the year as inflation is expected to be more elevated in the second half,” he added.
The consumer price index climbed 1.5 percent in August from a year earlier, quickening from July’s 0.9 percent increase. That was the steepest gain since March’s 1.8 percent.
The latest reading also exceeded market consensus, topping the 1.2 percent median forecast of economists surveyed by the Inquirer. Still, this marked the sixth consecutive month that inflation fell short of the government’s official 2 to 4 percent target.
The stretch of subdued price gains could influence the central bank’s next policy steps. In August, the BSP trimmed its benchmark rate by a quarter point to 5 percent—a level Governor Eli Remolona Jr. described as “Goldilocks,” neither too low to fuel inflation nor too high to choke economic growth.
Figures showed vegetable price inflation bolted 10 percent last month, the fastest increase since January’s 21.1 percent surge. Analysts blamed the impact of heavy rains in late July, which carried over into the following month.
The costlier vegetables offset the faster decline in rice prices, which fell to a record 17 percent drop. As a result, the overall food index rose 0.9 percent, reversing July’s 0.2 percent contraction.
Miguel Chanco, an economist at Pantheon Macroeconomics, said food inflation should now continue to “mean-revert upwards over the coming twelve months or so.”
“Overall, we’re sticking to our view that inflation will average at 1.8 percent this year. That said, we’ve raised our 2026 projection to 3 percent from 2.6 percent,” Chanco said in a separate commentary.
“We continue to believe that the BSP will cut at least one more time before the end of 2025, by 25 basis points, though it is unlikely to pull the trigger again until December,” he added.
