THE International Monetary Fund (IMF) yesterday said the country’s central bank faces a difficult policy trade-off as elevated inflation combines with weaker economic growth, stressing that further interest rate increases should depend on whether price pressures become persistent. “Monetary policy must prevent temporary price shocks from turning into persistent inflation, without unnecessarily weakening economic activity,” IMF said in a statement.
With inflation expectations broadly anchored and substantial spare capacity in the economy, IMF said “further tightening should depend on persistent inflationary pressures or stronger second-round effects.” “Over the longer term, improving food and energy security will be essential to reducing the Philippines’ vulnerability to future shocks,” IMF said.
The policymaking Monetary Board has increased the key rates of the Bangko Sentral ng Pilipinas (BSP) by another quarter-point during its August meeting, bringing the rates higher to 5.0 percent. The market is anticipating another rate increase after inflation for September hit a three-year high at 7.2 percent.
The BSP is scheduled to meet next week, Oct. 22.
Consumer price growth accelerated to 7.2 percent in September due to higher prices of key food items, along with elevated energy and transport costs. The BSP has trimmed its inflation forecast to 6.1 percent this year from the previous 6.4 percent but raised its forecast for 2027 to 5.4 percent from 4.5 percent. BSP expects inflation to remain above the target until the third quarter of 2027.
On the country’s growth, the IMF said it has retained its projection for 2026 at 3.4 percent, but growth is expected to recover next year to 5.1 percent.
“This is a robust recovery — thanks to the still elevated Philippines growth potential — which allows the Philippines to maintaining a relatively strong pace compared with many Asean (Association of Southeast Asian Nations) peers next year,” IMF said.
However, IMF stressed that the 2027 forecast is “still relatively lower than its growth potential.” “The recovery is expected to be driven by a gradual rebound in investment as confidence improves and the effects of the energy shock ease,” IMF said.
It noted that the main risks are renewed delays in public infrastructure investment, persistently high energy and food prices, and weaker investor confidence. “Restoring public investment while strengthening governance will be key to making the recovery durable,” IMF said.
IMF’s growth projection for the Philippines for 2026 is the slowest among developing economies in the region — below the 5.1 percent forecast for Indonesia, 5.2 percent for Malaysia, 7.0 percent for India, and 8.4 percent for Vietnam. Gross domestic product (GDP) growth slumped in the second quarter of this year to 2.3 percent, following the fallout from the war in the Middle East. The government is aiming to hit between 3.5 and 4.5 percent growth this year, while growth for next year may be between 5.0 and 6.0 percent. IMF expects the country’s inflation to remain above the government’s 2.0 to 4.0 percent target at 5.6 percent and 4.1 percent this year and next year, respectively. It may be the highest inflation rate among major emerging Asian economies in 2026 — higher than India’s 5.0 percent, Vietnam’s 4.7 percent, Indonesia’s 3.3 percent, Malaysia’s 2.2 percent, Thailand’s 2.1 percent and China’s 1.0 percent.
