PROSPECTS for further monetary easing have become more uncertain after core inflation surprised on the upside, an analyst said amid expectations of the Bangko Sentral ng Pilipinas (BSP) ordering another quarter-point rate cut next week.
Monetary authorities will still likely cut key interest rates by 25 basis points on Feb. 19, HSBC Global Research economist Aris Dacanay said, but “the path to further monetary easing may have gotten murkier.”
“January’s headline CPI (consumer price index) surprised to the upside because of a jump in core CPI — potentially complicating the path of monetary easing,” he added.
Consumer price growth rose to an 11-month high of 2.0 percent in January from 1.8 percent in December. Core inflation, which excludes select food and energy items, increased to 2.8 percent from 2.4 percent.
Dacanay said core inflation was driven by sharp increases in water rates and restaurant prices.
“Water rates in January increased as regulators allowed water concessionaires to recoup some of the capital expenditures made to improve service,” he noted. “This was a one-time event and will unlikely play a significant role in monetary policy deliberations.”
“All in all, we think January’s CPI has made the path to further rate cuts rougher,” Dacanay said, noting that inflation results over the past two months weren’t as benign as expected.
While economic growth has slowed to its slowest pace since 2011 at 4.0 percent last year, “we still think the BSP will likely cut its policy rate in February, since we expect growth concerns to outweigh inflation when deliberating monetary policy,” he said.
Reacting to last week’s inflation news, the Bangko Sentral ng Pilipinas (BSP) said the outlook “continues to be benign while inflation expectations remain well anchored,” with the rate expected to stay within the 2.0- to 4.0-percent target range this year and next.
Ahead of the upcoming policy meeting, the central bank reiterated its December guidance that the current cycle of interest rate cuts could soon come to an end.
“On balance, the Monetary Board sees the monetary policy easing cycle as nearing its end. Any further easing is likely to be limited and guided by incoming data,” the BSP said.
“The Monetary Board will meet on 19 February 2026 to discuss the evolving assessment of Philippine macroeconomic prospects and their implication to monetary policy.”
Pantheon Macroeconomics economist Miguel Chanco also said that given the sharp rise in core inflation, a larger 50-basis-point rate cut was now unlikely to be considered despite the weak fourth-quarter economic growth result.
“We’re sticking to our view that the Monetary Board will cut by a further 25bp later this month,” he said. “That said, a larger 50bp move now looks unlikely to enter the discussion.”
Key interest rates have been cut by a total of 200 basis points beginning August 2024 as inflation returned to target. The BSP’s benchmark rate currently stands 4.5 percent following a 25-basis-point cut last month.
Dacanay said if the central bank were to decide to pause, “we think it would only be a postponement of easing, not a complete derailment.”
