Asia FX and Rates Strategy: Philippines Trip Notes – Turbulent times

Research evidence excerpt

Asia FX and Rates Strategy: Philippines Trip Notes – Turbulent times

und expected in 2027-2028. Growth drivers include private

consumption recovery in H2 2026, improved inflation outlook, gradual investment

rebound, and sustained government spending on vulnerable sectors. Risks include

ongoing inflation, governance concerns affecting confidence, climate shocks (El

Niño), trade policy uncertainty, and financial market volatility. Public investment

reforms to restore confidence include recovering 841 mn pesos and freezing 27.8 bn

pesos in assets linked to corruption.

Inflation outlook - Inflation is expected to moderate gradually but remains

elevated due to supply shocks and wage pressures. The BSP expects inflation to be

around 6.4% in 2026, easing to 4.5% in 2027 and near target by 2028, factoring in

Middle East tensions and peso depreciation. Wage pressures are anticipated to

increase due to inflation in the first half of 2026, contributing to demand-side

inflation risks. In general, inflation is expected to remain elevated for the remainder

of the year due to approved electricity price hikes, fertilizer price hikes (given their

strong impact on agricultural output and food prices) as well as minimum wage

hikes. El Niño is not in the baseline but modeled as a severe scenario with an

estimated 8% increase in domestic rice prices and 20% rise in international prices

over 12 months from Q3 2026. This scenario projects prolonged food inflation

impacts lasting a year, increasing overall inflation risk in late 2026 and 2027. BSP

will reassess these factors at the next policy meeting to adjust the central

projection if needed.

Inflation pressures persist due to rising food and energy costs despite easing oil

prices.