Jumbo rate hikes seen despite anemic growth
The Bangko Sentral ng Pilipinas (BSP) may press ahead with more aggressive interest rate increases despite weak economic growth, analysts said, as policymakers prioritize price stability amid a global oil price surge tied to the Middle East war.
Aris Dacanay, senior Southeast Asia economist at HSBC Global Investment Research, said the BSP may continue its tightening cycle despite the anemic economic activity to keep inflation expectations in check, and avoid spillover effects of higher fuel and food prices.
“A strong monetary response may be needed,” Dacanay said.
“Despite slow growth, we think an outsized 50-basis point (bp) rate hike is still on the table for the BSP in June if oil prices remain at or above $100 a barrel by that time,” he added.
“Another alternative is for the central bank to smoothen its tightening cycle by opting to do an ‘off-cycle’ quarter point rate hike before the rate-setting meeting in June.”
The BSP has already moved to tighten policy in response to the global oil shock tied to the US-Israel war with Iran, now in its second month.
The central bank raised its key policy rate by a quarter point to 4.5 percent at its April 23 meeting, when policymakers also weighed a larger half-point increase as they acknowledged a “deteriorating” inflation outlook.
The BSP said inflation may average 6.3 percent this year and 4.3 percent in 2027. BSP Governor Eli Remolona Jr. earlier told Bloomberg that the market could expect a succession of “modest” rate hikes.
As it is, the Philippines’ economic trajectory is facing mounting stagflation risks following yet another weak growth print and intensifying inflationary pressures.
Gross domestic product (GDP) slowed further to 2.8 percent in the first quarter of 2026 from 3 percent in the previous quarter after the country was hit by a double whammy from the war and lingering fallout from last year’s corruption scandal.
The latest GDP print was also the weakest among Southeast Asian economies. Meanwhile, inflation accelerated to 7.2 percent in April from 4.1 percent in the previous month amid the oil price shock.
“The Philippines is facing a twin-crisis squeeze, with economic growth already weakened by the flood control controversy and now further strained by surging oil and food prices, as we face a stagflation scenario—high inflation alongside weak growth,” economists at Chinabank said in a commentary. “We expect softer growth to continue for the rest of the year as Filipinos pull back spending and businesses reduce operating expenses and postpone expansion plans.”
BMI Research, a unit of Fitch Group, downgraded its 2026 growth forecast for the Philippines to 4.2 percent from 4.7 percent, while raising its inflation outlook to 5.6 percent from 4.3 percent.
“Looking ahead, the growth outlook is increasingly clouded by the US-Iran conflict, which has intensified inflationary pressure. With prices spiking, this will likely keep private consumption subdued in the subsequent quarters,” BMI said.
For its part, ANZ Research said household consumption is unlikely to improve meaningfully, even with potential gains in government spending.
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