The BANGKO Sentral ng Pilipinas (BSP) may raise benchmark borrowing costs by 50 basis points (bps) this year as the oil price shock from the Iran war worsens inflation expectations.
Last week, the central bank ended its easing cycle as it raised the key policy rate by 25 bps to 4.5% and indicated that more rate hikes could follow to protect prices due to the Iran war.
“We think the BSP is likely to continue the tightening of its monetary policy, and may prefer to act sooner rather than later, especially since it has already forecast an increase in inflation over two years from 2026 to 2027,” Deutsche Bank Research said in a note.
Deutsche Bank Research said it sees BSP rates hiking by 25 bps in its meetings on June 18 and Aug. 27 to bring the policy rate to 5%.
ANZ Research said it also expects the BSP to deliver two more 25-bp rate hikes raising the rate in its next two meetings.
“With the BSP’s estimated policy rate now at 4.5% and inflation in April likely to be higher, the real policy rate has dropped significantly to near zero from its peak levels earlier this year.
turning negative. This will allow for a monetary accommodation policy that can support growth despite the rate hike,” ANZ Research said.
In March, headline inflation rose to a nearly two-year high of 4.1%, faster than the BSP’s forecast of 3.1%-3.9%. and 2%-4% target for the year.
The central bank now expects inflation to fall to 6.3% this year and 4.3% next year, both above its 4% ceiling, before returning to the tolerance level in 2028.
In a note dated April 23, ING Think Asia Pacific Regional Head of Research Deepali Bhargava said the BSP will continue to tighten in a “loaded but measured manner” following a revision of its inflation forecasts.
“A rapid but moderate rate hike is likely ahead. With inflation expected to average 6.3% in 2026, the BSP is unlikely to be tightened,” Ms Bhargava said.
“Now we expect an increase of 50 bps in 2026, taking into account the decrease in supplies in the US-Iran conflict at the end of the second quarter. However, if the disruption continues, and Brent prices remain above $100 / bbl for most of 2026, a deeper and more vicious cycle will follow,” he added.
BSP Governor Eli M. Remolona, Jr. on Friday he said the central bank is willing to do whatever it takes to contain inflation, leaving the door open for a rate hike.
“The market needs to understand that we will do what is necessary to contain inflation,” he said in an interview with Bloomberg TV. “At the moment, that looks like a sequence of low rate hikes.”
Citibank said that in its base case, the BSP would rise again by 25 bps in June before slowing.
“We think the BSP will aim to keep the actual policy rates on hold given the weak GDP growth environment heading into the energy shock… Our June policy forecast of 4.75% will be about 45 bps above the BSP’s 2027 inflation rate forecast of 4.3%, and we think the BSP will stop there,” Citibank said.
However, Citibank said the balance of risks is higher for a further 25-bp hike in August, compared to a pause in June.
“A follow-up 25-bp hike in August could happen, eg, if the BSP’s inflation forecast for 2027 moves higher in the coming months, or if the BSP’s focus on exchange rate hikes. So far, we feel that the BSP is not overly concerned about the inflationary impact of recent exchange rate moves,” it said.
Citibank said further hikes in August would still leave the original Policy estimates are negative for the year.
“This suggests that even two more hikes would keep policy reasonably accommodative, given the negative output gap and supply-driven nature of the shock,” it added.
For its part, BMI sees another 25-bp rate hike in June to help refocus inflation expectations, before stalling amid growth risks.
‘ONE AND DONE’
Meanwhile, Pantheon Macroeconomics Emerging Asia Economist, Miguel Chanco, said the BSP’s latest move will be “one and done.”
Mr. Chanco said they also increased its inflation forecasts to “only 4.6%” this year from 4.2% previously, and 3.5% in 2027 from 3.1% previously.
“If our modest view is correct, then the April hike will be a ‘one and done,’ and the next move by the BSP will be reduced by this time next year, when current shocks begin to fade from the annual picture,” he said. – AMCS
