The Philippines full-year inflation could persist in remaining below the central bank’s annual target range, research analysts from two international banks said on Monday.
Junjie Huang, economist for the Philippines from Deutsche Bank AG, first pointed to the “limited” risk of the country’s inflation breaching the upper-end target of the Bangko Sentral ng Pilipinas (BSP).
He said the inflationary risk this year is all about moving well below the BSP’s 2 percent to 4 percent target band.
Jojo Gonzales, economist for the Philippines from Bank of America’s investment banking arm, BofA Securities, said “low inflation may persist through 2025.”
The central bank’s inflation target for the year ranges from 2 percent to 4 percent. But inflation has been moving below that range since March 2025.
Inflation slowed to 1.4 percent in April from 1.8 percent in March, the lowest in 5-½ years since November 2019, when the rate of inflation sagged to a low 1.2 percent, data released last month by the Philippine Statistics Authority (PSA) showed.
Below target
“Full-year inflation in 2025 is at risk of coming below BSP’s 2-4 percent target range,” Huang said, adding that DB recently downgraded its full-year forecast to 1.9 percent from 2.4 percent.
“Year-to-date inflation averaged 2 percent in April, and downside risks are still present,” he said.
The way Huang sees it, rice prices are likely to remain low amid a global supply glut, citing the rollout of the P20 per kilogram subsidized rice and the reduction in rice tariffs last year that “would continue to work its way through.”
“In addition, falling global oil prices could keep a lid on the Philippines’ domestic fuel prices,” he said.
Rice 9% of CPI
Gonzales notes that rice accounts for 9 percent of the Consumer Price Index (CPI), and the drop in rice prices is partly structural in light of the drop in the import tariff on rice to 15 percent from 35 percent.
“While this cut began in August 2024, low rice prices were not felt at the local retail level until February 2025, and only after higher-priced rice inventories were depleted and the government cracked down on retailers who were not passing on lower rice prices to the consumer,” Gonzales said.
He said the 15 percent tariff on rice is expected to remain in place until 2028.
Gonzales said low oil import prices are also a contributing factor to low inflation.
“This directly and indirectly accounts for as much as 16 percent of the CPI when one considers related factors like transportation costs, electricity prices, and other utilities,” he said.
BofA research places Brent crude at $71 per barrel on average year-to-date, or 15 percent lower than a year earlier. Spot prices are currently about $64 per barrel.
It also sees Brent averaging $62 for the rest of 2025, compared with $80 last year.
“In this context, oil is seen continuing to exert downward pressure on inflation,” Gonzales said.
Two more rate cuts
DB expects “two more cuts in BSP’s current easing cycle with the terminal rate at 5 percent.”
“Our view was on the premise that BSP would prefer to maintain a sufficiently positive interest rate differential vis-à-vis the Fed,” Huang said.
Amid persistent price pressures, the BSP’s policy-setting Monetary Board began its easing cycle in August 2024 by reducing the policy rate by 25 basis points (bps). This was followed by two more rate cuts in October and December.
Recognizing the uncertainties facing the global economy after US President Donald Trump imposed reciprocal tariffs on nearly all of America’s trading partners, the easing cycle was delayed in February but resumed in April with another 25 bps cut.
After signalling in early May that a further 75 bps in rate cuts were possible for the rest of the year, BSP Governor Eli Remolona Jr. said last week that the central bank has leeway for two more cuts.
“We think that his comments likely referred to concerns around currency volatility and the pass-through to inflation,” Huwang said.
“Our base case is for 25 bps rate cuts in the coming June and August meetings, even as Governor Remolona said that the two more cuts may not necessarily be consecutive,” Huang said.
Consumer confidence
The elevated rates of inflation that persisted last year held back consumer confidence, but it is bound to recover as low inflation is bound to persist, Gonzales said.
“Consumer confidence inversely tracks inflation, and this decline in inflation in 2025 should see consumer confidence finally return to pre-pandemic levels,” Gonzales said.
“We see consumer confidence and consumption recovering further as inflation remains subdued and monetary authorities cut policy rates further,” he said.
“Strong growth in consumer credit seen since 2024 should support a sustained consumer rebound,” Gonzales added.
BofA earlier said it expected the central bank to deliver two more cuts in the coming months: “We think the BSP will cut its policy rate at least 50 bps more for the balance of 2025, with the next cut likely during its June 19 meeting.”
