Inflation over 3% raises concern, BSP chief says

MANILA, Philippines — Inflation moving above the Bangko Sentral ng Pilipinas’ three percent target is more worrying than undershooting it, as headline inflation edged higher in January following steep declines last year, according to BSP Governor Eli Remolona Jr.

Speaking before the Management Association of the Philippines, Remolona said inflation is projected to “hover around three percent over the next two years,” which he described as consistent with the central bank’s mandate.

“ I don’t mind too much if inflation falls below three percent,” Remolona said. “I worry more when it goes up beyond three percent.”

The BSP targets inflation at three percent, with a tolerance band between two and four percent. Remolona said that inflation experienced by the bottom 30 percent of households has been even lower than the national average, which he said was an important consideration for policymakers.

Inflation accelerated to an 11-month high in January, rising by two percent from 1.8 percent in December 2025. Still, it was lower compared to the 2.9 percent recorded in the same month last year.

While price stability has improved since the record highs in 2023, Remolona flagged weaker growth as the main challenge. The country’s gross domestic product (GDP) grew by just 4.4 percent in 2025, below government targets.

“Our growth has stalled,” he said, noting that the slowdown was driven largely by a loss of confidence in the second half of 2025, which weighed on consumption of big-ticket items, investment spending and public infrastructure outlays.

Remolona said the key risk going forward is whether confidence can be restored. He pointed to tentative but encouraging signs, including supply chain surveys, easing government securities yields and a recovery in the stock market after a mid-2025 drop linked to a confidence shock.

“As of February, the 10-year yield was 5.95 percent,” he said. “That’s a sign of confidence.”

He added that while confidence is “not coming back as fast as we would like,” the BSP expects conditions to normalize by the second half.

In a chance interview, he reiterated that inflation remains the BSP’s primary mandate, even as growth concerns persist.

He said growth considerations are part of policy deliberations through the assessment of the output gap, but stressed that the BSP does not target growth directly. “Growth matters, but we don’t have a target for growth,” he said.

Asked whether the growth slowdown could outweigh inflation concerns in policy decisions, Remolona said it was “a factor,” but price stability remains paramount. He added that long-term growth depends mainly on supply-side reforms rather than monetary policy alone.

On the policy outlook, Remolona said the BSP continues to monitor incoming data amid shifting conditions.

“The numbers seem to have changed relative to what we thought they were,” he said, adding that this gives the central bank room for further assessment.

BSP Deputy Governor Zeno Abenoja said inflation is expected to move gradually toward the three percent target, possibly edging slightly above it in the second half before stabilizing.

“If you look at the path of inflation, it will gradually move close to three percent and then possibly a little above three percent by the second half,” Abenoja said. “But after that, inflation will stabilize.”

He added that the BSP prefers inflation to be slightly below target rather than above it.

Abenoja also said the transmission of recent policy rate cuts has been uneven. Of the roughly 200 basis points of easing since August 2024, about 60 to 70 percent has been reflected in the Treasury bill market, while transmission to lending rates has averaged about half, with faster pass-through observed in the corporate sector due to stronger competition.

On GDP, Abenoja said updated forecasts are still being finalized. He said lower interest rates, subdued inflation and tentative signs of improving confidence could support better growth compared with last year.

Both officials stressed that sustaining confidence will depend on continued governance reforms and their effective implementation, alongside the BSP’s efforts to maintain price stability and strengthen monetary policy transmission.

The Monetary Board will have their first policy meeting on Feb. 19.