MANILA – The Bangko Sentral ng Pilipinas (BSP) is set to continue its monetary policy easing, forecasting that this year's inflation rate will undershoot its 2-4% target. This comes after growing confidence in price stability, with the Consumer Price Index (CPI) for July hitting 0.9%, the lowest level since October 2019.
According to the Philippine Statistics Authority (PSA), the July 2025 inflation rate was 0.9%, a significant drop from the previous month's 1.4%. This marks the lowest figure since the 0.6% recorded in October 2019. As a result, the cumulative average inflation rate from January to July this year stands at 1.7%, well below the government's target of 2-4%.
The most significant factor behind the decline in inflation is the stabilization of rice prices. As rice is a staple food, its price has a major impact on overall inflation in the Philippines. Last year, the government implemented aggressive supply-side policies—such as increasing rice imports and lowering tariffs—to counter rising rice prices, which had fueled inflationary concerns. Consequently, rice price inflation began to slow steadily from August 2024 and in July 2025, it fell by 15.9% year-on-year, driving the overall decline in inflation. In addition to rice, stable electricity and oil prices also contributed to the decrease.
Monetary Easing Focused on Boosting Economic Growth
With clear signs of inflation stabilizing, the BSP stated that a "more accommodative monetary policy stance is justified." The central bank has already cut its policy rate three times this year, for a total of 50 basis points (bp), and BSP Governor Eli Remolona has hinted at the possibility of further rate reductions. This suggests a shift in the central bank's focus from curbing inflation to promoting economic growth.
The BSP's analysis indicates that global economic activity is showing signs of slowing down due to uncertainties from U.S. trade policies and geopolitical conflicts in the Middle East. Recognizing that these external factors could negatively impact the Philippines' domestic economy, the BSP’s strategy is to proactively lower interest rates to stimulate the economy.
The BSP predicts that while the 2025 inflation rate will fall below the target, it will return to within the target range in 2026 and 2027. This forecast considers base effects, a global economic recovery, and an expected increase in domestic demand, which could put upward pressure on prices.
However, uncertainties still surround monetary policy. The timing and pace of interest rate cuts by the U.S. Federal Reserve and other major central banks could affect the Philippine peso's exchange rate, potentially reigniting inflationary pressures. Furthermore, the possibility of a sharp rise in international oil prices due to deepening geopolitical instability in the Middle East remains a potential risk.
The BSP emphasized the need for "close monitoring of future inflation trends, along with a continuous assessment of the impact of previous monetary policy adjustments." The ultimate goal is to fulfill its core mandate of maintaining price stability while also creating a policy environment that supports sustainable economic growth and employment. With a stable inflation foundation, all eyes are on whether the Philippine economy can take the next step forward.
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