SURGING inflation appears to have run its course, Nomura Global Research said, but underlying pressures are expected to keep the Bangko Sentral ng Pilipinas (BSP) on track for further interest rate hikes this year.
In its latest Asia Economic Monthly report, Nomura said that easing global oil prices were beginning to pull down headline inflation, although core inflation — which strips out volatile food and energy prices — continues to climb as earlier increases in fuel costs filter through the broader economy.
“We believe headline inflation has already peaked, but core inflation has not, reflecting second-round effects,” Nomura said.
Nomura lowered its average inflation forecast for 2026 to 5.1 percent from 5.5 percent and also trimmed its 2027 projection to 3.1 percent from 3.2 percent.
It also narrowed its forecast for the country’s current account deficit this year to 4.4 percent of gross domestic product (GDP) from 4.8 percent.
The revised outlook follows signs that consumer price growth has started to moderate after surging earlier this year amid higher global energy costs.
Consumer price growth slowed to 6.4 percent in June from 6.8 percent in May, largely reflecting lower retail fuel prices. Core inflation, however, continued to accelerate, rising to 4.4 percent from 4.1 percent, indicating that broader price pressures have yet to fully subside.
Still, Nomura believes that monetary authorities, who have raised key interest rates twice this year in response to the inflation surge, are done tightening.
“We still expect measured hikes by BSP,” it said.
Nomura maintained its forecast for an additional 50 basis points of increases this year, which will bring the policy rate to 5.25 percent.
The BSP’s policymaking Monetary board raised the benchmark rate — currently at 4.75 percent — in April and June by 25 bps each time.
Nomura said the central bank’s “decisively hawkish” stance supported its expectation of additional increases, although future moves are likely to be gradual rather than aggressive.
It expects the tightening cycle to be relatively short-lived, forecasting the BSP to begin easing monetary policy in the second half of 2027 with cumulative rate cuts of 75 basis points, which would bring the policy rate back to 4.50 percent.
Nomura left its Philippine economic growth forecast unchanged at 4.6 percent for 2026, only slightly higher than 4.4-percent expansion in 2025.
“We expect GDP growth to remain weak through H1 2026, due to the lingering effects of the corruption scandal, continued fiscal tightening and as weak sentiment is still weighing on private investment spending,” it said.
“The impact of the Iran conflict has added to these headwinds, although the fall in oil prices is a welcome relief,” it added.
Nomura expects economic growth to strengthen in the second half of 2026 as government catch-up spending gains traction and favorable base effects emerge.
However, it cautioned that domestic political developments, including the impeachment trial of Vice President Sara Duterte, could continue to weigh on investor confidence and the broader economic outlook.
“A sharper global growth slowdown, a re-escalation of geopolitical tensions, a more significant deterioration of the domestic political situation and weaker public sector spending pose downside risks to growth, while a sustained drop in oil prices is an upside risk,” Nomura said.
