Inflation has yet to peak in the Philippines despite easing slightly to 8.6 percent in February from 8.7 percent in January this year, Moody’s Analytics said on Monday.

“Inflation in the Philippines is uncomfortably strong and has likely not yet peaked,” the research arm of the Moody’s Group said in an emailed report.

Inflation averaged 4.9 percent from January to August last year, exceeding the two to four percent target of the Bangko Sentral ng Pilipinas.

Food and beverages, housing, water, electricity, restaurants and accommodation services drove headline inflation. Despite the slight easing of the headline figure, core inflation, which excludes selected food and energy items, rose to 7.8 percent from 7.4 percent in January.

“The odds are high that the country’s monetary policy tightening cycle is not over,” Moody’s said.

Terminal rate to reach 6.75%

Meanwhile, Japanese investment firm Nomura predicts the Philippines’ terminal rate will reach 6.75 percent as BSP may continue to raise interest rates in response to persistently rising inflation.

The bank has increased its inflation forecast for the Philippines from the original target of 5.6 percent for this year to 5.8 percent, according to Nomura chief ASEAN economist Euben Paracuelles and analyst Rangga Cipta.

“Given our new inflation forecast and our US team’s view of further Fed hikes in coming months, we add one more 25-basis-point hike by BSP to a terminal rate of 6.75 percent, and thus expect a 25-basis-point hike at each of the next three monetary board meetings,” Paracuelles and Cipta said.

“Beyond that, we still expect the BSP to reverse course and start cutting its policy rate, but only from March 2024, in line with our Fed call,” Paracuelles and Cipta said.

Nomura said that downside risks to growth include high food and energy prices and persistent domestic inflation, while potential positive risks include increased foreign direct investment inflows and a faster pace of infrastructure development.