Since inflation slowed to a new six-year low of 1.3 percent in May, the likelihood of a 25-basis point cut by the central bank in its next Monetary Board meeting later this month has become more certain, analysts said.
Analysts interviewed by this paper said the Bangko Sentral ng Pilipinas (BSP) is expected to use this ample room to maintain its monetary easing stance to encourage borrowing and boost economic activity in the country.
“At this point, the BSP has more room to consider rate cuts to stimulate growth, especially as inflation stays well below target,” John Paolo Rivera, senior research fellow from the Philippine Institute for Development Studies (PIDS), said.
What policy makers must now ensure is to keep this low-inflation economic reality from turning into an undesirable condition that is “symptomatic of a broader economic slowdown,” Rivera warned.
“Policymakers must monitor whether this trend is driven by improving supply conditions or by weakening consumption,” he said.
The government reported last week inflation eased further to 1.3 percent in May from a previous low of 1.4 percent in April as annual increases in utilities and transportation costs slowed.
In a report on Thursday, June 5, the Philippine Statistics Authority said May’s inflation rate is the slowest since November 2019, when inflation sagged to 1.2 percent.
The price rise’s slowdown in May brought the average inflation rate to 1.9 percent in the first five months of 2025. In May 2024, the inflation rate clocked in at 3.9 percent.
Warning: watch demand
“While this is good news for consumers, preserving purchasing power and keeping basic costs manageable, it may also signal subdued domestic demand, which is a concern for overall economic momentum,” Rivera said.
The more manageable inflation outlook and the downside risk to domestic economic activity “allow for a shift toward a more accommodative monetary policy stance,” the BSP said.
The latest inflation outturn is consistent with its assessment: a manageable inflation environment over the policy horizon.
The May 2025 inflation settled within the BSP’s forecast range of between 0.9 percent and 1.7 percent for the month.
But the BSP’s target range for the whole of 2025 is between 2 percent and 4 percent.
BSP’s dovish stance
A continuing trend of disinflation supports the BSP’s dovish stance, the chief economist at Unionbank said.
“A rate cut is likely at the June 19 policy meeting. We are expecting a 25-bps cut,” economist Ruben Carlo Asuncion of Unionbank said.
The latest headline inflation rate matched the mean average forecast of 1.33 percent by analysts polled by Malaya Business Insight on June 2.
The PSA said inflation in May declined under the slower 2.3 percent annual increase in the index for housing, water, electricity, gas and other fuels from 2.9 percent in April.
A faster annual decline was also recorded in the transport index at 2.4 percent from 2.1 percent in the same comparable period.
These numbers convinced Nicholas Mapa, chief economist of Metrobank, that “the door remains wide open for Bangko Sentral to cut rates in June.”
“Slow food and utility inflation coupled with deflation in transport costs nudged headline lower,” Mapa said.
Also contributing to the slowdown were prices of restaurant and accommodation services, which eased to 2 percent in May from 2.3 percent in April.
Core inflation, which excludes selected food and energy items, remained at 2.2 percent in April 2025. In April 2024, core inflation rate was faster at 3.2 percent.
Below target again
While inflation in May settled within the BSP target range for the month, RCBC chief economist Michael Ricafort said the 1.3 percent inflation last month was below the BSP’s full-year target of 2 percent to 4 percent for the third straight month.
This is a compelling reason for the BSP to justify near-term policy rate cuts, starting June 19 when the policy setting Monetary Board meets, Ricafort said.
A recent policy decision by the central bank reduced the reserve requirement on banks that took effect on March 28. Ricafort noted the decision infused about P330 billion into the banking system.
At this point future rate cuts ”will reduce intermediation costs and overall lending rates by banks that, in turn, will help boost demand for loans and overall economic growth,” Ricafort said.
Below neutral
Nomura Global Markets Research remains certain that the BSP now leans toward a policy stance of lowering policy rates ”below neutral this year.”
“We expect headline inflation to average 1.8 percent in 2025, below BSP’s 2-4 percent target,” Euben Paracuelles, Nomura’s senior economist, said.
“Our forecast pencils in CPI (consumer price index) inflation becoming more benign at 1.3 percent in the third quarter, down from 2.0 percent year-to-date, before edging back up to 2.0 percent by year-end,” Paracuelles said in a separate report.
Nomura’s benign inflation outlook is underpinned by such factors as negative output gap, low crude oil prices, and the government’s supply-side measures.
”We reiterate our call for the BSP to deliver an additional 75 bps of rate cuts this year, taking the policy rate to a below-neutral 4.75 percent,” Paracuelles said.
One sees slowing economy
Ateneo de Manila University professor of Economics Leonardo Lanzona said what may be happening now is a reflection of a slowing economy, “more like coming to a halt.”
“Despite the BSPs continuous easing of the policy rates, the aggregate demand has remained low,” Lanzona said.
Prices of goods and services may be rising at slower rates, but there is no increase in incomes to match the inflation rate, Lanzona noted, saying: “Social welfare has therefore not improved.”
HSBC economist for Asean Aris Dacanay in another report said core inflation remains steady, which shows consumer demand remains largely intact in the Philippines.
Three things keep HSBC convinced that the country’s headline inflation will grow on the soft side as a result of global supply factors:
(1) China’s disinflationary impulse as Chinese exporters sell their products in Asean instead of the US; (2) low global oil prices as global economic growth slows; (3) soft global rice prices.
Upside risks
Dacanay pointed out there are upside risks to inflation, specifically the P200 across-the-board minimum wage hike by the House of Representatives.
“Furthermore, policymakers are mulling the possibility of raising the tariff rates on rice based on the seasonality of the crop,” he said.
“If this materializes, there might be large implications on the inflation outlook; enough for the BSP to reconsider the pace of its easing cycle,” Dacanay added.
