Inflation may increase in Philippines Bangko Sentral will be allowed to remain soft over the next two years amid softening global commodity prices NG Pilipinas (BSP) to make Hong Kong and Shanghai banking easier Corporation (HSBC) Private Bank said.
In its 2026 outlook on the Philippine economy and markets, HSBC said headline inflation is likely to rise to 2.4% this year and rise to 2.8% in 2027. Both are within the central bank's 2%-4% target.
“Inflation has remained low and stable due to cheap imports from China and softening global commodity prices,” said Fan Cheuk Wan, chief investment officer for Asia at HSBC Private Bank and Premier Wealth.
In 2025, Philippine inflation falls to 1.7%, the lowest in nearly a decade or since a 1.3% clip in 2016. That was slightly faster than the central bank's 1.6% full-year forecast but below its target.
With inflation seen within target and growth prospects remaining bleak, HSBC expects a 25-basis-point (bp) cut in the key policy rate within the first quarter of the year.
“Tighter fiscal policy and slower infrastructure spending will curb capital imports, reduce the current account deficit and allow the BSP to keep monetary policy accommodative,” Ms Fan said.
“We expect another 25-bp rate cut by the BSP to 4.25% in the first quarter of 2026 to support the recovery in domestic demand.”
If realized, the benchmark interest rate would hit its lowest level since August 2022 or so when it was 3.75%. This will be equivalent to a rate of 4.25% in September 2022.
In 2025, the Monetary Board made five consecutive 25-bp rate cuts from April to December, bringing prime borrowing costs to a three-year low of 4.5%. This has resulted in a total reduction of 200 bps since the start of its easing cycle in August 2024.
BSP Governor Eli M. Remolona, Jr. said another rate cut remains on the cards, but added that the current policy rate is already “very close” to his desired rate, pointing to the end of his easing cycle.
Still, he said weaker-than-expected growth could prompt him to make a total of two rate cuts this year.
The Monetary Board will have six policy meetings this year, with the first review taking place on February 19.
neutral peso
Meanwhile, HSBC's Ms Fan said the peso is proThis year is expected to be a range bound It is expected to end the year at P59.20 against the dollar.
“After the Philippine peso weakened to its record low against the US dollar in 2025, we expect the peso to remain largely range-bound this year and reach P59.20 in late 2026,” he said. “We maintain a neutral outlook on the peso over the next six months.”
On January 14, the peso fell to a new record low of P59.44 against the greenback.
“On the Philippine Stock Exchange, it is CG.NIf IUnderperformance against regional competitors has already hurt growth in 2025 Headwinds from poor infrastructure investment And domestic demand has declined,” Ms Fan said.
The flood control corruption scandal hit both the peso and the stock market amid weakened investor and business confidence as investigations implicated government officials and private contractors in receiving bribes from infrastructure projects.
On November 14, the Philippine Stock Exchange Index fell to 5,584.35, its weakest close in nearly five and a half years or since closing at 5,570.22 on May 28, 2020.
However, HSBC said discounted stock valuations could protect the local stock market from further downside risks, and said the market could see earnings growth of 8% this year.
“The deeply discounted valuations should limit further market declines,” Ms Fan said. “Therefore, we maintain our neutral view on Philippines stocks.” — Katherine K. chan