DBS lowers Philippine inflation forecast to 1.7%

SINGAPORE-BASED DBS Bank slashed its inflation forecast for the Philippines for 2025, with expectations of further policy easing for the remainder of the year.

“Moderation in food price has helped to soften inflation, with the contribution of services also off the boil. Broad-based deceleration provided the backdrop for the BSP to unwind tightening moves from 2022-23,” DBS Senior Economist Radhika Rao said in a commentary.

DBS now expects Philippine headline inflation to settle at 1.7% this year, much lower than its previous forecast of 2.6%.

Headline inflation sharply eased to a near six-year low of 0.9% in July from 1.4% in June and 4.4% a year ago. This also marked the fifth straight month that inflation settled below the central bank’s 2-4% target range.

For the first seven months of the year, inflation averaged 1.7%.

The Bangko Sentral ng Pilipinas (BSP) expects inflation to average 1.6% this year.

“Inflation for the bottom 30% of income households has been receding, led by food costs, signaling relief on household expenses,” Ms. Rao said.

Inflation for the bottom 30% of income households slipped to 0.8% from the 0.4% dip in June. Year-to-date, inflation for the bottom 30% income households averaged 0.5%.

Meanwhile, DBS said it sees the central bank further reducing interest rates this year.

“BSP has unwound about a third of the 450 basis points (bps) of rate hikes undertaken in 2022-2023. The real rate cushion of (around) 350 bps to 400 bps backs the central bank’s dovish talk.”

“We expect the BSP to cut by further 50 bps this year, with the next in August,” she added.

The Monetary Board has lowered borrowing costs by a total of 125 bps since it began easing in August last year.

The central bank has been delivering rate cuts in increments of 25 bps. At its last meeting in June, it cut by 25 bps to bring the policy rate to 5.25%.

BSP Governor Eli M. Remolona, Jr. earlier said they can deliver two more 25-bp reductions this year and even potentially continue its easing cycle until next year.

The Monetary Board is set to have its next policy review on Aug. 28.

Meanwhile, DBS trimmed its gross domestic product (GDP) forecast for the Philippines to 5.6% this year from 5.8% previously.

The Philippine economy grew by 5.5% in the second quarter, a tad faster than the 5.4% in the first quarter. However, this was slower than the 6.5% growth in the second quarter of 2024.

For the first half, GDP growth averaged 5.4%, slower than the 6.2% a year ago.

“The segments broadly rose, led by household consumption in the midst of midterm elections, while net exports recovered due to frontloading of exports to the US,” Ms. Rao said.

“Businesses have also adopted a cautious tone into mid-2025, as the outlook is clouded by a post-election trough, trade uncertainty-led impact on US and regional growth. Construction fared better but services were sluggish.”

DBS also noted that the Development Budget Coordination Committee’s (DBCC) latest growth assumptions are “more realistic.”

The DBCC lowered its GDP growth target band to 5.5-6.5% this year from 6-8% previously.

The economy must grow by 5.6% for the rest of the year to achieve the low end of the full-year target.

“The Philippines has grown more slowly than its ASEAN (Association of Southeast Asian Nations) peers in the past three decades. Boosting domestic demand via a wider manufacturing footprint and reforms to attract foreign direct investment will be important to return to a durable recovery path,” Ms. Rao said.

“Demographic tailwinds are significant for Philippines, with the median age amongst the lowest in the region. It will be crucial to tap this strength by improving employment prospects, investing in human capital and lifting incomes.” — Luisa Maria Jacinta C. Jocson