The central bank is likely to maintain a cautious stance as the Philippine economy confronts a slowdown and heightened inflation risks stemming from a depreciating peso and a record‑high minimum‑wage increase.
Analysts highlight two simultaneous inflationary pressures: a larger‑than‑expected wage hike in the National Capital Region and renewed external pressures from volatile oil markets combined with a weaker currency.
These factors could postpone the return of inflation to the 3 % target, emphasizing the need for credible monetary policy and well‑anchored inflation expectations while broader government measures address structural price drivers.
Forecasts project headline inflation remaining above target through 2028, with estimates of 6.4 % for 2026, 4.5 % for 2027 and 3.1 % for 2028.
Headline inflation has stayed above the target since March, following the outbreak of conflict in the Middle East, and eased to 6.4 % in June from 6.8 % in May as oil prices fell after a temporary peace agreement.
For the first half of the year, the average headline inflation rate was 4.8 %, while core inflation accelerated to 4.4 % in June, marking the fastest pace in nearly three years.
The recent minimum‑wage adjustment is expected to lift inflation by roughly 0.4 percentage point, with additional risks arising from spillover effects such as higher production, transport costs and possible increases in food and service prices.
If households and firms begin to anticipate permanently higher inflation, wage and price adjustments could become mutually reinforcing, creating a wage‑price spiral that central banks aim to avoid.
The wage board approved an ₱85 increase in the daily minimum wage for the capital region, with an initial ₱60 tranche effective July 25 and a second ₱25 tranche slated for January 20 2027.
Officials acknowledge that the wage increase exceeds earlier expectations and poses a notable inflationary risk, though they do not anticipate it will trigger a large‑scale policy rate hike.
A weakening peso adds further pressure by raising the local cost of imported goods, especially fuel and food, despite a decline in exchange‑rate pass‑through since inflation targeting began in 2002.
The peso traded around ₱61.75 per dollar in recent sessions, matching its lowest finish amid renewed Middle East tensions that have revived inflation concerns.
The central bank now faces the challenge of managing domestic cost pressures from wage growth alongside imported inflation driven by currency depreciation and higher global oil prices.
Persistent inflation erodes real household incomes, weakens consumption—which accounts for more than three‑quarters of GDP—and ultimately restrains broader economic growth.
Monetary policy is expected to remain cautious, balancing the need to preserve price stability with the potential impact of further rate adjustments on economic activity.
To date, the benchmark interest rate has risen by 50 basis points through two consecutive 25‑basis‑point hikes, bringing it to 4.75 %.
Policymakers indicate that a further 25‑basis‑point increase remains possible, especially if growth shows signs of recovery in the second half of the year.
Growth outlook remains subdued, with GDP expanding at a post‑pandemic low of 2.8 % in the first quarter and government projections for the year ranging between 3.5 % and 4.5 %.
The Monetary Board has scheduled regular policy reviews for August 27, October 22 and December 17, during which future rate decisions will be assessed.
