BSP signals series of modest rate hikes
The Bangko Sentral ng Pilipinas (BSP) will tighten monetary policy when necessary to contain inflation, Governor Eli Remolona Jr. said, adding that the market can expect a succession of “modest” rate hikes.
In an interview with Bloomberg, Remolona said the BSP was trying to stay ahead of the curve in its fight against inflation, which has shown signs of broadening as higher oil prices quickly spill over to other key consumer items.
“The market needs to understand that we will do what’s necessary to contain inflation, and at the moment, that seems like a succession of modest rate hikes,” he said.
“We stay vigilant and we’ll do as many hikes as necessary,” he added.
On Thursday, the Monetary Board raised the benchmark rate by a quarter point to 4.5 percent, the first increase in more than two years and a decisive end to the central bank’s easing cycle. Higher borrowing costs are meant to temper household spending, easing demand-driven price pressures even as they risk slowing economic growth.
Remolona acknowledged that interest-rate increases are a blunt tool for supply-driven price shocks, but said they can help anchor expectations and discourage consumer and business behavior that could further fuel inflation. Policymakers said inflation may average 6.3 percent this year and 4.3 percent in 2027—breaching the central bank’s 2-percent to 4-percent target range.
Policymakers also considered scenarios that could have warranted a jumbo half-point increase, but Remolona said the board ultimately judged a smaller move to be “the most reasonable scenario.”
More pressure
In a note, analysts at BMI, a unit of the Fitch Group, said it expects another quarter-point rate increase this year, which would bring the key rate to 4.75 percent.
“Further inflationary pressures lie ahead,” they said. “Unlike regional peers such as Thailand, Indonesia and Malaysia, the Philippines does not typically absorb higher energy costs as fiscal constraints hinder broad-based price caps, so increases in global energy prices pass through relatively quickly.”
Junjie Huang, economist at Deutsche Bank Research, takes a more hawkish view, forecasting two additional quarter-point hikes at the central bank’s June and August meetings.
“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,” Huang said.
“Moreover, fiscal policy should provide some support to the economy while monetary policy tackles inflation, although 2026 growth is still likely to come in below 5 percent,” he added.
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