PHILIPPINE INFLATION may remain subdued over the next two years amid softer global commodity prices, allowing the Bangko Sentral ng Pilipinas (BSP) to ease further, Hongkong and Shanghai Banking Corp. (HSBC) Private Bank said.
In its 2026 outlook on the Philippine economy and market, HSBC said headline inflation will likely pick up to 2.4% this year and quicken to 2.8% in 2027. Both are within the central bank’s 2%-4% target.
“Cheaper imports from China and easing global commodity prices have led to low and stable inflation,” Fan Cheuk Wan, chief investment officer for Asia at HSBC Private Bank and Premier Wealth, said.
In 2025, Philippine inflation settled at 1.7%, the slowest in nearly a decade or since the 1.3% clip in 2016. This 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 dim, HSBC expects another 25-basis-point (bp) reduction to the key policy rate within the first quarter of the year.
“Tighter fiscal policy and slower infrastructure spending will curb capital imports, narrowing the current account deficit and giving leeway for the BSP to keep monetary policy accommodative,” Ms. Fan said.
“We expect one more 25-bp rate cut by the BSP to 4.25% in Q1 2026 to support domestic demand recovery.”
If realized, the benchmark interest rate would reach its lowest since August 2022 or when it stood at 3.75%. It would likewise match the 4.25% rate in September 2022.
In 2025, the Monetary Board delivered five straight 25-bp cuts from April to December, which brought the key borrowing costs to an over three-year low of 4.5%. It has so far slashed a total of 200 bps since it began its easing cycle in August 2024.
BSP Governor Eli M. Remolona, Jr. said another rate cut remains on the table but noted that the current policy rate is already “very close” to their desired rate, hinting at the end of their easing cycle.
Still, he said that weaker-than-expected growth may prompt them to deliver a total of two rate cuts this year.
The Monetary Board will have six policy meetings this year, with the first review scheduled for Feb. 19.
NEUTRAL PESOMeanwhile, HSBC’s Ms. Fan said the peso is projected to remain range-bound this year, with a P59.20 finish against the dollar likely by yearend.
“After the Philippine peso weakened to its record low level against the US dollar in 2025, we expect the peso to remain largely range-bound this year and will reach P59.20 at the end of 2026,” she said. “We hold a neutral view on the peso over the next six months.”
The peso fell to a new record low of P59.44 versus the greenback on Jan. 14.
“On the Philippine stock market, its significant underperformance against the regional peers in 2025 has already priced in the growth headwinds from weaker infrastructure investment and subdued domestic demand,” Ms. Fan added.
The flood control corruption scandal battered both the peso and the stock market amid weak investor and business confidence as probes implicated government officials and private contractors in receiving kickbacks from infrastructure projects.
On Nov. 14, the Philippine Stock Exchange index plunged to 5,584.35, its weakest close in nearly five and a half years or since the 5,570.22 close on May 28, 2020.
However, HSBC said discounted stock valuations could buffer the local stock market against further downside risks, adding that the market may see an 8% income growth this year.
“The deeply discounted valuations should limit further downside for the market,” Ms. Fan said. “Hence, we maintain our neutral view on Philippines stocks.” — Katherine K. Chan
