The Bangko Sentral ng Pilipinas (BSP) is expected to keep its policy rates unchanged this week before resuming its monetary easing cycle in December, according to Citi.
The BSP’s Monetary Board is scheduled to meet on Thursday for its latest policy review.
Citi noted that the lower-than-expected September inflation reading of 1.7 percent meant that real policy rates would remain somewhat above the BSP’s neutral range of 1.5 percent to 2 percent in the absence of further cuts.
The bank continues to forecast the BSP would resume cuts in December as well as the first quarter of 2026, which would bring the real policy rate firmly to the floor of the 1.5 percent to 2 percent neutral range in 2026.
Citi maintains its view of further two 25-basis-point BSP rate cuts, before the rate reaches a terminal 4.5 percent.
The bank said that mixed economic data and the peso’s underperformance, and its potential inflation impact, would likely lead the BSP to pause in October.
Philippine Statistics Authority (PSA) data showed that headline inflation rose to 1.7 percent in September from 1.5 percent in August, which was lower than the 1.9 percent expected by Citi and the market consensus.
Core inflation marginally eased to 2.6 percent in September from 2.7 percent in August, remaining in the lower half of the BSP’s 2 percent to 4 percent inflation target range.
Rice prices, after declining for over 14 consecutive months, stabilized month-on-month versus expectations of a rebound, Citi noted.
On a year-on-year basis, rice prices were still down 17 percent. Higher year-on-year inflation outside foods was bolstered by transport fuels due to low-base effects as well as a recent gasoline price increase amid a weakening peso.
“Following tame inflation readings in September, we continue to expect a gradual rebound of the headline into the three percent-handle in 2026, in line with BSP’s view,” Citi said in a research note.
“With regard to policy rates, our view is that growth concerns could eventually resurface, leading to a cut before the end of the year. However, as economic data is so far mixed, BSP will probably pause in the October meeting,” it said.
Citi sees a stable trajectory for global oil as well as coal prices, which should eventually keep domestic energy inflation well-managed.
“We see headline inflation reverting to target range in 2026 as YoY rice deflation wears off,” Citi said.
“We see a sideways path for the headline [between 1.3 percent to 2 percent YoY] up to the first quarter of 2026 before rising into the 3.0 to 3.5 percent range by end-2026,” it said.
