In a Palace briefing on Thursday, Presidential Communications Office spokesperson Undersecretary Claire Castro said to cushion the impact of peso depreciation, the government is focused on slowing price increases, supporting investments, and strengthening key sectors of the economy.

She also acknowledged that ongoing investigations into anomalous flood control projects have weighed on market sentiment, but said this phase must be confronted to restore confidence.

Asked whether possible convictions related to the probe could help stabilize the peso, Castro declined to speculate, but said accountability could help rebuild trust among Filipinos and investors.

Philippine inflation risks tilt lower, policy space opens

Despite currency pressures, the inflation environment in the Philippines remains markedly different from that of the United States — though the importance of central bank credibility is no less critical.

The BSP has flagged inflation risks in 2026 as tilted to the downside, according to its December 2025 Monetary Policy Report.

Using an Inflation-at-Risk framework, the central bank estimates a 44.8 percent probability that inflation could fall below 2 percent by October 2026, with the lower tail of outcomes as low as 0.3 percent.

The upper-tail estimate stands at 3.2 percent, while the probability of breaching the 4 percent ceiling is “essentially zero.”

Headline inflation stood at 1.8 percent in December 2025, bringing full-year inflation to 1.7 percent — below the BSP’s 2–4 percent target — while core inflation held at 2.4 percent.

With inflation subdued and growth risks present, analysts say the BSP still has room to ease, although policymakers have signaled caution as the easing cycle nears its end.

Infrastructure spending, governance and growth risks

Monetary policy does not operate in a vacuum. Fiscal execution and governance conditions shape the environment in which central banks act.

The Department of Budget and Management has lowered its infrastructure spending target to 4.3 percent of gross domestic product for 2026 — equivalent to about P1.3 trillion — down from earlier plans above 5 percent, as the government grapples with the fallout from corruption allegations linked to flood control projects.

Slower public works spending could weigh on growth momentum, underscoring how governance shocks can complicate macroeconomic management and reinforce disinflationary pressures.

Why central bank independence matters

The Fed-DoJ confrontation illustrates a risk long familiar to emerging economies: once monetary authorities are perceived as politically constrained, costs can surface through currency weakness, capital outflows, and higher inflation risk premia.

In the Philippine context, BSP credibility has historically anchored inflation expectations and supported financial stability. Bank lending growth remains robust, with BSP data showing universal and commercial bank loans expanding 10.3 percent year-on-year in November 2025.

For the Philippines — where food accounts for about 38 percent of the CPI basket — external shocks can transmit quickly.

The lesson from Washington is clear: even the perception of political pressure on a central bank can be damaging, reinforcing the need to preserve a clear institutional boundary between monetary policy and political interests.