Manila: The Bangko Sentral ng Pilipinas (BSP) is anticipated to implement further reductions in policy rates extending into the coming years, with expectations for inflation to remain within the targeted range, as stated by BMI, a unit of Fitch Solutions.

According to Philippines News Agency, the central bank is likely to maintain steady policy rates during its upcoming October meeting, but a 25 basis points rate cut is projected for December. "While a sharp fall in rice prices drove headline inflation down from 1.4 percent year-on-year in June to 0.9 percent in July, we expect near-term price pressures from the rice import ban-slated to begin in September for two months-and higher electricity prices," BMI noted.

BMI highlighted that despite signs of weakening economic growth, BSP Governor Eli Remolona has indicated another 25 basis points cut to the policy rate before the end of 2025. He described the current economic state as a 'sweet spot,' suggesting a preference to maintain rates in the upcoming October meeting. The easing of inflationary pressure towards the end of 2025 is expected to offer the central bank more room for rate cuts.

Inflation for the current year is projected to settle at 1.6 percent, aligning well within the government's target range of 2 to 4 percent. BMI further forecasts that the BSP will reduce rates by another 50 basis points in 2026, adjusting the policy rate to 4.25 percent.

BMI also anticipates economic growth to reach 5.2 percent in 2026, which underscores the necessity for the central bank to cut rates to stimulate further economic activity. "We forecast a slight weakening in the peso against the greenback from an average of PHP58.00 per USD in 2025 to PHP58.50/USD in 2026, which should help insulate the economy from import-induced inflation," BMI stated.

The report suggests that while potential electricity rate adjustments and higher rice tariffs may exert inflationary pressures, the weaker growth momentum is expected to contain the overall upward pressure on prices. Inflation is projected to average 2.5 percent, remaining within the central bank's target range.

BMI cautioned that an escalation in the global tariff war could impact consumer and investment sentiment more significantly, potentially leading to a more considerable drop in output. "If such a scenario materializes with inflation expectations remaining largely anchored, the BSP would prioritize the economy and implement larger policy rate cuts," BMI concluded.