Citi expects the Bangko Sentral ng Pilipinas (BSP) to delay its next interest rate cut to December 2025 from October, following higher-than-expected inflation in August and the end of a disinflation trend in rice prices.
The US financial giant said in a statement that it now expects two more 25-basis-point policy rate cuts, but has “pushed back our October 2025 rate cut call to December.”
The bank noted that August’s inflation uptick was driven by weather, but also showed “some early signs of broadening price pressures.”
The Philippines’ consumer price index accelerated to 1.5 percent year-on-year in August from 0.9 percent in July, exceeding both Citi’s forecast of 1.1 percent and the consensus of 1.2 percent.
Month-on-month seasonally adjusted inflation also accelerated to 0.5 percent from 0 percent in July. While rice continued its disinflation trend, stronger inflation in other food items such as vegetables and fish, due to disruptive weather, offset this.
Core inflation, which strips out volatile food and energy prices, also rose to a year-high of 2.7 percent from 2.3 percent in August 2024. This was attributed to several components, including household equipment, healthcare and recreation. A 7-percent hike in the minimum wage in July may have also contributed to demand pressures, Citi said.
While the share of CPI sub-categories with inflation above 4 percent only slightly increased to 21 percent from 20 percent, suggesting the acceleration was not especially broad-based, Citi believes overall year-on-year inflation has “probably bottomed.”
The bank said that year-to-date inflation through August has reached 1.7 percent, but the recent uptick in volatile food prices should reverse once weather disruptions subside.
It said the disinflation trend in rice has likely passed, at least in the near term, as the government halted rice imports for 60 days starting in September to protect local farmers.
As for core inflation, Citi said while it is too early to expect an upward resurgence, a downward momentum is now less likely in the near term.
Backward-looking and coincident indicators point to relatively stable growth, with domestic demand growth in the second quarter faring better than expected, it said.
Exports through July have not shown any “alarming sign of a payback effect” and the manufacturing PMI was resilient.
As a result, Citi slightly raised its headline inflation forecast for year-end 2025 to 1.7 percent from 1.5 percent, while maintaining its year-end 2026 forecast in the “low 3 percent region.”
It expects inflation to rise to 1.9 percent in September and 2 percent in October before slowing below 2 percent from November 2025 to February 2026 and then rising above 2 percent from March 2026.
Despite the August inflation print being within the BSP’s expectation of 1 percent to 1.8 percent year-on-year, Citi believes immediate uncertainty on inflation could push back the timeline for rate cuts.
“We move our October rate cut call to December, as by then the inflation upside risk vs. BSP’s base-case will probably have subsided,” the bank said.
