Inflation target unchanged amid ‘floodgate’ growth downgrade — BSP

Inflation target unchanged amid ‘floodgate’ growth downgrade — BSP | Daily Tribune

The Development Budget Coordination Committee (DBCC) will maintain its headline inflation target range of 2 to 4 percent until the end of the Marcos Jr. administration’s term in 2028, according to the Bangko Sentral ng Pilipinas (BSP).

In its final Monetary Policy Report for 2025, the central bank — which consults with the DBCC in setting national economic targets — said the inflation target range will remain unchanged despite the recent downward revision in gross domestic product growth targets.

The BSP said it projects inflation at 3.2 percent in 2026 and 3.0 percent in 2027, both comfortably within the government’s target range.

The Development Budget Coordination Committee is an inter-agency body that sets fiscal targets, economic assumptions, and expenditure priorities and plays a central role in preparing the national budget. Chaired by the Department of Budget and Management secretary, it includes the Department of Finance, Department of Economy, Planning, and Development, and the BSP, with oversight from the Office of the President.

Last week, Arsenio Balisacan, DEPDev secretary, announced at a Malacañang press conference that the government revised its 2026 GDP growth target to 5 to 6 percent, down from the 6 to 7 percent range set by the DBCC in June 2025.

The downgrade followed disappointing growth figures amid a contraction in infrastructure investment and weakened investor confidence linked to the flood control scandal.

The BSP said domestic growth remains subdued in the fallout of the “floodgate” slowdown.

“Compared with the previous round, the growth forecast for 2025 has been revised downward, reflecting the weaker-than-expected Q3 2025 outturn, driven by subdued construction activity and investment,” the central bank said.

“The growth outlook for 2026 has likewise been lowered, as the investment slowdown is expected to persist through the first half of the year amid less favorable economic sentiment,” it added, noting that 2027 growth is projected to improve due to the lagged effects of earlier policy rate cuts.

The BSP said the output gap — the difference between actual and potential economic output — is expected to widen amid governance concerns that continue to cloud investment. Potential output growth is also expected to slow in the near term as investigations into the flood control scandal continue.

The central bank cited “subdued public infrastructure spending following the proposed removal of flood control projects from the 2026 budget of the Department of Public Works and Highways” as a key drag on investor sentiment.

“Nonetheless, rising real wages and household incomes could support consumption, while a gradual recovery in investment activity and infrastructure spending is expected to underpin overall demand beginning in 2027,” the BSP said.

The BSP reiterated the macro- and microeconomic benefits of low inflation, which averaged 1.7 percent in 2025 — below target. Inflation expectations, it said, remain “well-anchored,” although prolonged weakness in investment through the first half of 2027 could further dampen business sentiment.

“A more prolonged period of weak investor sentiment would lead to a more protracted slowdown in private investment and a wider negative output gap,” the BSP warned.

The report follows a recent assessment by the United Nations Department of Economic and Social Affairs, which projected Philippine GDP growth at 5.7 percent in 2026 — another downward revision amid lingering corruption-related headwinds.