THE BANGKO Sentral ng Pilipinas (BSP) could raise benchmark borrowing costs by up to 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 hiked the key policy rate by 25 bps to 4.5% and signaled more rate hikes could follow to safeguard spiraling prices due to the Iran war.
“We think BSP is likely to continue with its monetary policy tightening, and would choose to act sooner rather than later, especially as it had already forecast above-target inflation for two years over 2026 to 2027,” Deutsche Bank Research said in a note.
Deutsche Bank Research said it sees the BSP hiking rates by 25 bps at its June 18 and Aug. 27 meetings to bring the policy rate to 5%.
ANZ Research said it also expects the BSP to deliver two more 25-bp rate hikes at its next two meetings.
“With BSP’s nominal policy rate now at 4.5% and inflation in April likely to be higher, the real policy rate has come down sharply closer to zero from its elevated levels earlier this year. As inflation surpasses 5% year on year in the coming months, the real policy rate is set
to turn negative. This will allow for an accommodative monetary policy which can support growth despite rate hikes,” ANZ Research said.
In March, headline inflation rose to a near two-year high of 4.1%, faster than the BSP’s 3.1%-3.9% forecast and 2%-4% target for the year.
The central bank now expects inflation to average 6.3% this year and 4.3% next year, both above its 4% ceiling, before returning to its tolerance range in 2028.
In an April 23 note, ING Think Asia Pacific Regional Head of Research Deepali Bhargava said the BSP is set to tighten further in a “front loaded but measured manner” following the revision in its inflation forecasts.
“Fast but measured rate hikes are likely ahead. With inflation projected to average 6.3% in 2026, the BSP is unlikely to be done tightening,” Ms. Bhargava said.
“We now expect an additional 50 bps of hikes in 2026, assuming material de-escalation in the US-Iran conflict by the end of the second quarter. However, should disruptions persist, and Brent prices remain above $100/bbl for most of 2026, a deeper and more aggressive hiking cycle would likely follow,” she added.
BSP Governor Eli M. Remolona, Jr. said on Friday that the central bank is prepared to do whatever necessary to contain inflation, leaving the door wide open to more rate hikes.
“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 seems like a succession of modest rate hikes.”
Citibank said in its base case scenario, the BSP will have a follow-up hike of 25 bps in June before a pause.
“We think BSP will aim to keep real policy rates in accommodative territory given the weak starting point of GDP growth going into the energy shock… Our June policy rate forecast of 4.75% would be around 45 bps above BSP’s existing 2027 inflation rate forecast of 4.3%, and we think BSP will stop there,” Citibank said.
However, Citibank said the balance of risks is higher for an additional 25-bp hike in August, compared to a pause in June.
“A follow-up 25-bp hike in August could materialize, e.g., if BSP’s 2027 inflation forecast moves higher in the coming months, or if BSP’s attention on exchange rate pass-through increases. So far, we sense that BSP is not overly concerned on the inflation impact of recent exchange rate movements,” it said.
Citibank said an additional hike in August would still leave real policy rates negative for the year.
“This suggests that even two more hikes could keep policy appropriately accommodative, in line with the negative output gap and supply-driven nature of the shock,” it added.
For its part, BMI sees one more 25-bp rate hike in June to help re-anchor inflation expectations, before pausing amid risks to growth.
‘ONE AND DONE’
Meanwhile, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the BSP’s latest hike will be “one and done.”
Mr. Chanco said they have also hiked its inflation forecasts to “only” 4.6% this year from 4.2% previously, and 3.5% in 2027 from 3.1% previously.
“If our more modest outlook is right, then the April hike probably will be just ‘one and done,’ with the BSP’s next move likely to be a cut this time next year, when the current supply shock starts to drop out of the year-over-year inflation picture,” he said. — AMCS
