In 2025, the Philippines’ inflation landscape is a critical factor shaping Bangko Sentral ng Pilipinas (BSP) interest rate decisions, with direct implications for housing loan rates, construction costs, and property prices. With inflation trending below the BSP’s 2-4% target, discussions center on whether further rate cuts will be implemented to boost economic growth and stimulate the real estate sector.

Inflation Trends and BSP’s Policy Stance

Inflation in the Philippines has remained subdued in 2025, easing to 0.9% in July, the lowest since October 2019, and averaging 1.7% year-to-date. The BSP projects inflation at 2.9-3.2% for 2025, well within its target range. This low inflation, driven by stable food and energy prices, has prompted the BSP to adopt an easing bias, with Governor Eli Remolona signaling two potential rate cuts this year, starting possibly at the August 28 meeting. The benchmark rate, currently at 5.25% after a 25-basis-point cut in June, is at a two-and-a-half-year low.

However, risks like El Niño, geopolitical tensions, and rising global commodity prices could push inflation higher, prompting cautious BSP moves. Remolona emphasized “baby steps” to avoid overheating the economy, targeting a neutral rate around 2%.

Impact on Housing Loan Rates and Construction Costs

Lower inflation and anticipated rate cuts directly influence housing loan rates. The BSP’s easing cycle, resuming in August 2024, has reduced borrowing costs, with bank lending rates for households rising only 20% during the 2022-2024 tightening cycle, compared to the BSP’s 450-basis-point hikes. Further cuts could lower mortgage rates, currently around 6-7% for fixed-rate loans, making homeownership more affordable.

However, construction costs are rising due to inflation-driven increases in labor and materials, potentially offsetting affordability gains. Developers face higher expenses, which may translate to elevated property prices, especially in Metro Manila and Cebu, where demand remains strong.

Will BSP Rate Cuts Stimulate the Economy?

The BSP’s focus on supporting growth, with GDP expanding 5.5% in Q2 2025, suggests further rate reductions are likely, potentially totaling 100 basis points by 2026. Lower rates could boost housing demand by reducing mortgage costs, encouraging first-time buyers and investors. However, weak policy rate pass-through to bank lending limits the impact, as banks’ low-cost deposits and credit data gaps hinder rate adjustments.

While rate cuts may stimulate real estate, external risks like U.S. tariffs and Middle East conflicts could disrupt growth, affecting developer confidence and pricing strategies.

Outlook for Real Estate Investors

With inflation under control and BSP signaling further easing, 2025 offers opportunities for homebuyers as loan rates may decline. However, rising construction costs could push property prices higher. Investors should monitor BSP meetings, particularly on August 28 and December, for rate cut signals and assess projects in high-demand areas to balance affordability and appreciation potential.