By Katherine K. Chan
THE BANGKO SENTRAL ng Pilipinas (BSP) may hold off further monetary easing in October after inflation rose to a five-month high in August, with analysts expecting the central bank to deliver its last interest rate cut for the year in December.
Union Bank of the Philippines (UnionBank) Chief Economist Ruben Carlo O. Asuncion said it would be difficult for the BSP to justify another reduction in borrowing costs next month given the rebound in price pressures.
“Given the upside surprise in headline and core inflation, a rate cut in October looks unlikely,” Mr. Asuncion said in an e-mailed reply to questions. “It is difficult to justify a BSP rate cut as both cyclical and structural inflation measures tilt upward.”
Security Bank Chief Economist Angelo B. Taningco said the Monetary Board would likely pause in October “in light of the rising inflationary pressures.” “However, we still maintain our view for the BSP to conduct its fourth 25-basis-point (bp) rate cut for the year in December,” he said in an e-mail.
Headline inflation quickened to 1.5% in August from 0.9% in July, mainly due to typhoon-driven spikes in vegetable and fish prices. It was faster than market expectations but slower than 3.3% a year earlier.
The August rate fell within the BSP’s 1-1.8% forecast but exceeded the 1.3% median estimate in a BusinessWorld poll of 16 analysts. It also marked the sixth straight month that inflation remained below the BSP’s 2-4% target.
For the first eight months, inflation averaged 1.7%, matching the central bank’s 2025 forecast.
Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., said the August outcome would weigh heavily on the BSP’s next policy move.
“While inflation from the previous months went below analysts’ expectations, the August reading went beyond,” he said in a Viber message. “Thus, we may see a more cautious and calibrated approach from the central bank with regard to the timing of the next rate cut.”
In a report, Deutsche Bank also noted that inflation risks in the coming months could prompt a pause in October, though it still expects easing to resume in December.
The BSP lowered the benchmark interest rate by 25 bps to 5% on Aug. 28, its third straight cut since August 2024. In total, it has reduced rates by 150 bps this cycle.
BSP Governor Eli M. Remolona, Jr. earlier signaled that there could be room for one more adjustment before yearend but stressed that the easing cycle is nearly complete.
Emilio S. Neri, Jr., chief economist at Bank of the Philippine Islands, said the central bank’s stance reflects concerns about inflationary risks next year.
“(Mr. Remolona) is probably foreseeing the changes in inflation next year,” he told Money Talks with Cathy Yang on One News. “We will be on an uptick that could lead to a breach.”
“And if we aren’t able to control inflation expectations, that could lead the BSP to actually hike instead of cut,” he added.
Still, he said a cut later in the year remains possible, particularly if global developments support looser policy.
FED CUENicholas Antonio T. Mapa, chief economist at Metropolitan Bank & Trust Co., said the Philippine central bank would likely align its decision with the US Federal Reserve’s next policy move and domestic growth data.
“We expect BSP to await more data points on inflation, see whether the Fed cuts in November and look to third-quarter GDP (gross domestic product) numbers for guidance,” he said in a Viber message.
If the Fed resumes easing, domestic growth stays modest and inflation trends align with the target, the BSP may consider another rate cut before yearend, he added.
Mr. Erece said labor market and growth conditions could justify another adjustment.
The Monetary Board will meet on Oct. 9 and Dec. 11 for its final two policy reviews this year.
Meanwhile, analysts flagged the increase in core inflation, which strips out volatile food and fuel items, as a key concern. Core inflation climbed to 2.7% in August, the highest in eight months, from 2.3% in July.
“The main surprise from our standpoint in the latest release is the jump in core inflation to an eight-month high,” Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said in a note last week. “It’s worth remembering, though, that in the Philippines, core inflation still includes some elements of food and energy prices.”
Mr. Mapa said the uptick was driven by select food items outside the core basket that were affected by storm damage. “These food items, such as other vegetables, appear to have been impacted by the recent spate of storms and thus constitute a supply-side shock inflation episode,” he said.
Despite the August rise, core inflation averaged 2.4% in January to August, slower than 3.2% a year ago.
This shows companies are passing on more costs and demand remains firm, which the BSP is watching closely, Mr. Asuncion said.
The central bank expects full-year inflation to stay below target in 2025 before returning to within 2-4% by 2026 and 2027. Its forecast for 2026 is now 3.3%, while its projection for 2027 is 3.4%.
Pantheon Macroeconomics forecasts inflation at 1.8% this year and 3% in 2026, higher than its earlier 2.6% projection. “We continue to believe that the BSP will cut at least one more time before the end of 2025, by 25 bps, though it is unlikely to pull the trigger again until December,” Mr. Chanco said.
UnionBank likewise revised its forecast to 1.8% from 1.6%.