Metrobank Predicts Sustained Monetary Easing in 2026 as Inflation Stays Within Target
With inflation beginning the year firmly within the central bank's target range, Metropolitan Bank & Trust Co. (Metrobank) has indicated that monetary easing could persist throughout 2026. This policy is expected to provide crucial support to economic activity, even as emerging price pressures pose challenges to the Philippine economy.
Inflation Trends Show Stability Within BSP Targets
Philippine headline inflation rose to two percent year-on-year in January, up from 1.8 percent in December. This figure remains well within the Bangko Sentral ng Pilipinas (BSP) target band of 3±1 percent and aligns with the central bank's forecast range of 1.4 percent to 2.2 percent. Core inflation, which excludes volatile food and energy items, also increased slightly to 2.8 percent, signaling early signs of demand normalization as the economy continues its recovery phase.
Key Drivers of Inflation Pressures
Metrobank highlighted that upward pressure on inflation primarily stemmed from:
- Housing, water, electricity, gas, and other fuels, driven by annual rental adjustments outside the National Capital Region and higher electricity rates.
- In contrast, food inflation eased to 1.1 percent, supported by lower prices across most major food items and continued rice deflation, which helped temper overall price growth.
"While inflation is moving higher from recent lows, it remains well-anchored within the central bank's target," Metrobank stated. "This gives policymakers room to continue supporting growth, even as demand-side pressures gradually build."
Central Bank's Outlook and Economic Context
The BSP has affirmed that the inflation outlook remains benign, with inflation expectations firmly anchored. For 2026 and 2027, inflation is projected to settle within the three percent ± 1.0 percentage point target range. However, the central bank's Monetary Board noted a weakening outlook for domestic economic activity, with business sentiment declining due to governance concerns and uncertainty over global trade policy.
Despite these challenges, domestic demand is anticipated to rebound gradually as the effects of monetary policy easing permeate the economy and public spending improves.
Metrobank's Forecast and Policy Expectations
For the full year, Metrobank has maintained its 2026 inflation forecast at 3.3 percent. This projection accounts for low base effects and recovering demand, which could push prices higher in the second half of the year. These pressures are expected to be partially offset by softer consumer spending and supply-side factors, including the lifting of the rice import ban.
In this context, Metrobank expects the BSP to proceed with further monetary easing, forecasting a cumulative 50 basis points of policy rate cuts in 2026. This would bring the reverse repurchase rate to four percent by year-end, as authorities balance growth support with price stability.
