PRIVATE SECTOR economists expect inflation to remain within the central bank’s 2-4% target from this year to 2026, the Bangko Sentral ng Pilipinas (BSP) said.

The BSP’s latest survey of external forecasters in its Monetary Policy Report showed that analysts’ mean inflation forecast for this year stood at 3.1%, lower than the central bank’s 3.3% baseline projection.

The survey showed an 82.6% likelihood that inflation will settle within target this year and an 83.5% probability for 2026.

“Inflation expectations continue to be well-anchored. Risks are broadly balanced, with headline inflation expected to stay low and manageable over the medium term.”

For 2026, economists expect inflation to average 3.2%, also below the BSP’s 3.5% forecast.

Headline inflation averaged 3.2% in 2024, well within the target band. January inflation data will be released on Feb. 5.

The survey showed the within-target inflation outlook is mainly driven by easing rice and oil prices.

“Downside risks to the inflation outlook are seen to emanate largely from lower rice prices, amid the implementation of Executive Order (EO) No. 62 and lower oil prices,” the BSP said,

President Ferdinand R. Marcos, Jr. last June signed EO 62, which slashed rice import tariffs to 15% from 35% until 2028, citing the need to curb rice prices.

Rice inflation has slowed to 0.8% in December from 5.1% in November and 19.6% a year prior. Rice is typically the biggest contributor to overall inflation.

Global crude oil prices are seen to ease further, the BSP said.

“Futures prices have declined due to market expectations of higher US oil production and expectations of weaker global demand as well as the likelihood of global oversupply.”

“This in turn led to a delay in the anticipated increase in oil production by the Organization of the Petroleum Exporting Countries and other partner countries (OPEC+).”

However, the central bank warned that inflation could breach the 2-4% band if Dubai crude oil prices average above $90 per barrel from this year to 2026.

The Development Budget Coordination Committee expects Dubai crude oil to range from $60 to $80 per barrel from 2025 to 2026.

“These oil price scenarios consider only direct effects and do not incorporate potential second-round effects on transport fares, food prices, and wage increases.”

The surveyed analysts also flagged upside risks to the inflation outlook such as supply disruptions due to geopolitical tensions and adverse weather conditions.

“The potential spike in electricity rates, higher-than-expected wage adjustments, and protectionist US trade policies were also identified as upside risks,” it added.

The BSP also noted the possibility of rising electricity rates in the coming months.

“In July 2023, the Supreme Court nullified the previous cap on Wholesale Electricity Spot Market (WESM) prices for November 2013 and December 2013. Electricity rates could rise due to the potential increase in generation charges being passed on to consumers.”

The central bank earlier warned that the balance of risks to the inflation outlook remain tilted to the upside for this year and the next.

The BSP expects inflation to settle at the midpoint of the 2-4% target until the first half of 2025, before accelerating to the upper end of the target from the second half of 2025 to the first half of 2026.

Inflation will ease closer to the midpoint of the target by the second half of 2026, driven by declining global commodity prices, it added.

FURTHER EASING
Meanwhile, analysts surveyed by the BSP also expect further monetary policy easing for this year.

“For 2025, the general view is that the BSP will ease its monetary policy stance by a range of 50-100 basis points (bps). Meanwhile, analysts have mixed views on the target reverse repurchase (RRP) rate for 2026,” the BSP said.

Last year, the Monetary Board cut rates by a total of 75 bps, bringing the key rate to 5.75% by end-2024.

“On balance, there is scope for measured monetary policy easing given the within target inflation, manageable underlying price pressures and well-anchored inflation expectations. However, upside risks to inflation warrant close monitoring,” the BSP said.

“A further cut in the policy rate will help reinforce the impact of the prior monetary easing on market interest rates, lending activity, and aggregate demand.”

BSP Governor Eli M. Remolona, Jr. has said there is room to ease further as the current policy rate is still in “restrictive territory.” However, the central bank is likely to deliver further rate reductions in “baby steps.”

‘BELOW POTENTIAL’
Meanwhile, the BSP expects the Philippine economy to “grow below potential” over the near term due to subdued demand. The government is targeting 6-8% for 2025 to 2026.

“The outlook for domestic growth indicates a more subdued pace of economic activity up to 2026,” it said.

The BSP expected economic growth in 2024 to settle slightly below the government’s 6-6.5% target, after a weaker-than-expected third-quarter gross domestic product (GDP) print.

Fourth-quarter and full-year GDP data will be released today (Jan. 30).

“However, GDP growth is seen to modestly improve and settle close to the low end of the targets for 2025 and 2026,” the BSP said.

“The decline in global oil prices, the easing of BSP’s monetary policy, and the reduction in the reserve requirement ratio are seen to support domestic economic activity.”

Domestic demand is also seen to “remain firm but subdued.” — Luisa Maria Jacinta C. Jocson

By Luisa Maria Jacinta C. Jocson, Reporter

THE PHILIPPINES is so far on track to achieve its target of exiting the Financial Action Task Force’s (FATF) “gray list” by next month, the central bank’s top official said.

Asked about the progress on the country’s final steps to exiting the gray list, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. told BusinessWorld that it has been “so far so good.”

The FATF recently concluded its onsite visit in the Philippines this month ahead of its plenary and meetings in February, which Mr. Remolona is scheduled to attend.

At its October plenary, the FATF kept the country on its list of jurisdictions under increased monitoring for “dirty money” risks.

The Philippines has been on the list for over three years now or since June 2021.

However, the dirty money watchdog initially determined that the country had substantially completed the recommended action items to improve its anti-money laundering and counter financing of terrorism (AML/CFT) regime.

The FATF’s recent onsite visit and assessment aimed to verify the country’s progress and sustainability of AML/CFT reforms. This is typically the final step before it grants a country an exit from the list.

The Anti-Money Laundering Council earlier said it was positive that the country will be able to exit the dirty money list this year as it has addressed the remaining deficiencies.

However, it cited the need to sustain the progress on these reforms to ensure the country stays out of the list.

Chester B. Cabalza, founding president of Manila-based International Development and Security Cooperation, said the government must fast-track its financial reforms to exit the list.

“If in case it achieves the exodus from the gray list, to draw more investments and be considered a respectable economy in the region, the Philippines is obliged to have a clear-cut monitoring and innovative actions on how to stay buoyant financially without scar from its hits in FATF,” he said.

Filomeno S. Sta. Ana III, coordinator of Action for Economic Reforms, said that reforms should go further than those recommended by the FATF.

“The biggest reform that can deter money laundering and tax evasion is the lifting of the Bank Secrecy Act (BSA),” he said via Facebook messenger.

“Bank secrecy law is a Jurassic institution; only countries that are centers of money laundering have them. But international pressure is forcing this limited number of countries to relax their laws.”

Nueva Ecija Rep. Rosanna “Ria” V. Vergara said being part of the gray list for years now has had “significant consequences for our economy and citizens.”

“While enhanced due diligence is not explicitly required by the FATF, being on the gray list has resulted in a decline in foreign investments, reduced investor trust, and added financial burdens on Filipinos working abroad.”

“Getting off the gray list would have a transformative impact. It would restore global confidence in the Philippines, stimulate economic growth, and attract foreign investors back to our shores,” she added.

This would also be more beneficial for overseas Filipino workers (OFWs), as they face high transaction costs.

“As a result of being on the FATF gray list, they end up going to financial service providers (FSPs) that charge higher fees to send money,” Ms. Vergara said.

“These FSPs take advantage of our being on the list for the higher charges.  Being removed from the gray list will allow our OFW to choose FSPs who do not charge exorbitant fees.”

Monitoring of financial risks should not just be limited to institutions, Ms. Vergara said.

“Most often these unscrupulous individuals use nonfinancial agencies to do their illegal activities — casinos for one. Thus, vigilance is required.”

“Legislation must be passed to criminalize online scamming.  We need to upgrade our government’s capacity to identify and track down these illegal rings that often operate outside our country, defrauding our people of their hard-earned money.”

Last year, the Anti-Financial Account Scamming Act (AFASA) was signed into law. It aims to protect consumers from financial cybercrimes by penalizing violations.

Meanwhile, the Defend NGOs Alliance in a statement raised concern over the “misuse of CFT measures and erosion of civic space in the Philippines.”

It said the government’s efforts to exit the gray list have led to “increasing judicial attacks on nongovernment organizations (NGOs) and people’s organizations (POs).”

The group said the government’s implementation of FATF recommendations have been used to “justify restrictive measures against NGOs it sees as critical of the government under the guise of counterterrorism.”

“Stricter restrictions and regulations on NGOs disrupt their finances, operations and services. The research also points out that trumped-up cases are for ‘paper compliance’ to meet arbitrary quotas for exiting the FATF gray list.”

Data from Defend NGOs Alliance showed that there are at least 69 development workers and 29 NGOs in the country that have been tagged with charges related to terrorism.

In 2002, the FATF blacklisted the Philippines for having no legal anti-money laundering framework. It was removed from the blacklist a year later after the passage of the Anti-Money Laundering Act.