BSP seen weighing off-cycle rate hike
A surprise half-point rate hike outside the usual policy schedule of the Bangko Sentral ng Pilipinas (BSP) to 5 percent could come as soon as this month after April inflation surged well past forecasts and the central bank’s target, though fragile economic growth may ultimately cap how far the tightening cycle goes, analysts said.
In a note, economists at banking giant Citi said past tightening cycles show the BSP has moved aggressively when headline inflation reached 6 percent to 7 percent, as it did in 2018 and 2022—a pattern they said could be repeated in May or, more likely, at the Monetary Board’s June 18 meeting.
Their view followed fresh data showing consumer prices rose 7.2 percent from a year earlier in April, the fastest pace in three years, as a global oil shock tied to the Middle East conflict lifted energy costs and quickly spilled over to other household essentials.
The reading was far above the market consensus of 5.5 percent and exceeded the central bank’s own forecast range of 5.6 percent to 6.4 percent for the month.
“We see three 25-basis point BSP rate hikes for the rest of 2026, including a likely off cycle May hike,” they said. “Yet we see this as a risk rather than baseline scenario.”
The April surge marked the second straight month inflation breached the central bank’s 2-percent to 4-percent target range.
This happened while the economy had yet to fully recover from the blow to confidence and public spending caused by a major corruption scandal that slowed average growth in 2025 to 4.4 percent, the weakest in five years.
With fiscal policy in limbo, the central bank had stepped in to support the economy, cutting its key policy rate by 2.25 percentage points to 4.25 percent to help restore confidence.
Economists had expected a rebound this year until the Middle East conflict triggered a sharp oil-price shock that hit energy importers like the Philippines. The BSP responded with a rate hike to 4.5 percent.
In a separate note, Diwa Guinigundo, a former deputy governor at the central bank who now writes for Global Source Partners, said that while tighter policy cannot fix supply shocks, it can discourage consumer and business behavior that risks fueling further inflation.
“In short, monetary policy cannot stop the first-round shock—but it can prevent it from becoming self-sustaining inflation,” he said.
Aris Dacanay, senior Asean economist at HSBC Global Investment Research, said the risk of an off-cycle move was rising if policymakers aim for a smoother tightening cycle.
“A strong monetary response may be needed to support the peso and keep FX-induced inflation in check,” he said.
Separately, analysts at MUFG said there would likely be limits to how far rates can rise, with the central bank caught between persistent inflation and weak growth.
“Overall, we think BSP will likely have to hike rates further possibly by another 75-100 bps (basis points) this year given the inflation print,” they said. “And we will not be surprised if there is an off-cycle meeting to do so coupled with perhaps some chance of a jumbo 50 bps rate hike moving forward.”
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