Manulife Investment Management expects easing inflation and steady economic growth to be key factors in the Bangko Sentral ng Pilipinas’ (BSP) monetary policy decision on Thursday.
Jean de Castro, head of fixed income at Manulife Investment Management, said the BSP is likely to focus on the significant drop in inflation to 0.9 percent in July, a near six-year low, and second-quarter gross domestic product (GDP) growth of 5.5 percent.
“These signals indicate easing price pressures and resilient economic activity, providing the Philippine central bank with room to further ease its accommodative stance,” De Castro said.
“The BSP will likely prioritize balancing support for growth with the need to ensure price stability, while also monitoring external risks and financial sector conditions,” she said.
De Castro said the BSP’s expected rate cut and continued dovish posture would likely keep government bond yields low, encouraging investors to favor longer-duration fixed-income instruments.
“As inflation remains subdued and monetary policy remains supportive, investors may increase their exposure to government securities and extend portfolio duration, expecting stable or declining yields,” she said.
“This environment is expected to reinforce positive sentiment in the fixed-income market and encourage strategic positioning toward longer-term assets,” said de Castro.
De Castro said that for September inflation rate, key market drivers include food price deflation, particularly for rice and other staples and stable inflation expectations among consumers and businesses.
“Global commodity prices, supply chain developments, and weather-related risks could also influence the local inflation outlook,” she said.
She said if favorable trends continue, markets may anticipate sustained low inflation, supporting further easing from the BSP and strengthening investor confidence in the bond market.
De Castro said with inflation expected to remain subdued, investor demand may shift further toward conventional government bonds.
“If the inflation outlook continues to signal subdued price pressures, demand for traditional government bonds — especially longer-duration securities — could strengthen as investors seek to lock in yields,” she said.
“Overall, a benign inflation outlook favors adding duration and increased allocation to plain vanilla fixed-income products over inflation-linked alternatives,” she said.
