After two turbulent years of price spikes and global shocks, the Bangko Sentral ng Pilipinas ( BSP ), the Philippines’ central bank, says inflation has finally come under control. 

But while the central bank sees price stability returning firmly within target, BSP deputy governor Zeno Ronald Abenoja warns that the next challenge may come from a cooling economy and renewed global uncertainty.

Speaking at The Asset’s 20th Philippine Summit on October 3, Abenoja said the BSP’s latest indicators show inflation pressures have significantly eased as the impact of food and energy shocks fades, allowing the central bank to unwind some of its earlier monetary tightening.

“Inflation has come down and the outlook remains within our 2-4% target range,” Abenoja says. 

Over the past year, the central bank has reduced its policy rate from 6.5% to 5% and lowered the reserve requirement ratio from 20% to 5% to support bank lending and economic activity. Inflation, which peaked after the Russia-Ukraine conflict, is now expected to stay well within target in the medium term.

However, the BSP remains on guard. “Our job as a central bank is to worry, and even when things are getting better, we worry more,” Abenoja says.

BSP in easing mode

After surging in 2022 and 2023, headline inflation slowed sharply as energy and food costs stabilized, he says, pointing to these two key drivers as the culprits for heightened inflation in previous years. 

At the same time, Abenoja says core inflation, which reflects more persistent demand pressures, has also eased back to the midpoint of the BSP’s target range, suggesting that underlying price momentum has subsided. That improvement gave the BSP confidence to begin lowering interest rates starting in August 2024.

The central bank expects inflation to come in below 2% this year before averaging around 3.4-3.5% in 2026 and 2027. “These moves strengthen monetary transmission and make the banking system more effective in supporting economic activity,” Abenoja says.

Leveraging data, AI

In the same speech, Abenoja highlighted how the BSP is embracing new analytical tools and technologies to strengthen its policymaking in an increasingly volatile world. Some key tools include machine learning and generative artificial intelligence ( AI ) to enhance forecasting and scenario building, along with new indices to monitor supply, inflation sentiment, and policy uncertainty.

One such tool, the Philippine Supply Pressure Index, tracks pressures on inventories and logistics. Abenoja says supply strains earlier this year stemmed from adverse weather conditions affecting grains and outbreaks, such as African swine fever, which reduced pork supplies. However, transport costs have since eased with the improvement of global trade routes.

The BSP has also begun compiling a news-based Inflation Sentiment Index, which confirms the broad decline in inflation, and a Philippine Economic Policy Uncertainty Index, which spiked earlier this year due to external shocks but has since moderated.

“We are now leveraging smarter data to yield stronger insights,” Abenoja says, adding that this allows the central bank to be “more agile and responsive in a world that is increasingly shock-prone”. 

Independence, transparency

Abenoja also reaffirms the BSP’s independence and its commitment to transparency and accountability in monetary policymaking.

“We want the public and the business community to understand what we do, why we do it, and the basis of our decisions,” he says, adding that the BSP continues to evolve. “[We are] developing better frameworks, deeper data, and stronger collaboration with our partners to promote stability and broad-based growth for the country,” he says.

With inflation easing, interest rates falling, and new data tools sharpening its view of the economy, Abenoja says the BSP is committed to its next task: ensuring that price stability is balanced with the need to sustain growth.