Key facts
- Philippine inflation is expected to ease gradually in the medium term.
- Upside risks to consumer prices persist.
- The Bangko Sentral ng Pilipinas is prepared to take necessary monetary actions.
- The central bank's monetary board is scheduled to review policy on August 27.
The Bangko Sentral ng Pilipinas (BSP) anticipates a gradual easing of inflation over the medium term, despite persistent upside risks to consumer prices. Governor Eli Remolona assured lawmakers that the central bank is prepared to implement necessary monetary actions to guide inflation back to its target. The BSP's monetary board is scheduled to review its policy stance on August 27.
Following two years of significant price spikes and global economic shocks, the BSP has indicated that inflation is now under control. The central bank is also embracing new analytical and technological tools to enhance its policymaking capabilities.
In June 2026, the BSP raised its key policy rate by 25 basis points to 4.75%. Analysts project further rate hikes totaling 50 basis points in 2026, potentially reaching 5.25% by year-end, before a reversal in rate cuts begins in the first quarter of 2027, with the rate expected to settle at 4.50% by the end of that year. These forecasts are contingent on oil prices remaining contained and the US-Iran deal holding.
For the foreign exchange market, USD/PHP is expected to trade within the 60.00 to 61.50 range by the second quarter of 2027. Local currency bond yields are also projected to decline, with the 10-year yield potentially moving towards 6.70% by 2Q2027 from the current 7.00%. However, larger movements in the Philippine rates market depend on greater clarity regarding inflation trends, the impact of El Nino on food prices, and the trajectory of U.S. Treasury yields.
The Philippine Peso is expected to be supported by a narrower trade deficit due to lower oil prices and the US-Iran deal, alongside the BSP's hawkish stance and anticipated rate hikes. Increased government spending could also boost sentiment. Key uncertainties include potential shifts in U.S. Federal Reserve policy under a new chair, particularly concerning balance sheet adjustments and their impact on U.S. short-end and 10-year Treasury yields. Additionally, a strong El Nino event could significantly affect domestic food prices, especially rice, although global food inventories remain relatively high.