BSP seen delivering ‘measured’ rate hikes

The Bangko Sentral ng Pilipinas (BSP) is likely to embark on a brief and “measured” tightening cycle, analysts said, as policymakers aim to raise interest rates without putting too much strain on the economy’s fragile recovery.

In a note to clients, economists at Nomura Global Markets Research said they now expect the central bank to lift its policy rate by another 75 basis points (bps) this year, to 5.25 percent starting in June, after a global oil shock tied to the Middle East conflict pushed inflation beyond the official target.

Nomura added that the bank could begin reversing those increases next year, forecasting about 75 bps of rate cuts by the second half of 2027, bringing the policy rate down to 4.5 percent.

“We think BSP will take a measured approach, given growth headwinds,” the bank said. “We expect a very short hiking cycle.”

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, where policymakers acknowledged a “deteriorating” inflation outlook.

The central bank said inflation may average 6.3 percent this year and 4.3 percent in 2027. Policymakers also said they were “committed to fulfilling its primary mandate of slow inflation and will take necessary actions to ensure inflation returns to its 3-percent target within a reasonable time.”

Data showed consumer prices rose 7.2 percent from a year earlier in April, the fastest pace in three years, as higher energy costs quickly spilled over to other household essentials. 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 has yet to fully recover from the blow to confidence and public spending caused by a major corruption scandal last year. Gross domestic product (GDP) slowed further to 2.8 percent in the first quarter of 2026, from 3 percent in the preceding three months.

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“We expect GDP growth to remain weak through the first half of 2026, as limited pre-procurement activity delays projects and as private investment spending continues to be hurt by weak sentiment,” Nomura said. “The impact of the Iran conflict on energy prices is only adding to these headwinds and causing a surge in inflation, weakening household purchasing power.”

In a separate note, economists at DBS Bank Ltd. said they expect the central bank to raise rates by at least 50 bps between the second and third quarters of 2026, adding that the risk of an intermeeting move is “non-trivial.”

“The Bangko Sentral is expected to stay focused on containing inflationary expectations and opt to tighten policy levers,” they added.