Higher inflation seen delaying BSP policy rate cuts
A higher inflation outlook this year could keep the Bangko Sentral ng Pilipinas (BSP) on a tighter monetary policy path for longer, delaying the start of its rate-cutting cycle until the fourth quarter of 2027.
In two separate reports, Nomura economists said they raised their full-year 2026 inflation forecast to 5.9 percent from 5.8 percent following the higher-than-expected October inflation print.
Core inflation, which strips out volatile food and energy items, was likewise revised upward to 4.2 percent from 4 percent.
“Our forecast pencils in still-high CPI (consumer price index) inflation readings of above 7% in November and December, reflecting elevated energy prices that are being exacerbated by high food prices due to an intensifying El Niño phenomenon,” Nomura said.
“In addition, we raise our 2026 core inflation forecast, in line with our view of increased pass-through effects from the combination of high food and fuel prices to the rest of the CPI basket,” the economists added.
With this, the BSP may only have room to return to a rate-cutting cycle in the fourth quarter of 2027, instead of Nomura’s original projection of the third quarter. Nomura also expects the policy rate to fall back to 4.5 percent only by the fourth quarter of 2028, instead of by end-2027.
“The sharp pickup in core inflation does not only validate BSP’s more aggressive tightening in October, but it could also be a bigger worry for BSP, as it is likely to view the outturn as a sign of intensifying second-round effects from the energy price shock, which is being exacerbated by a likely El Niño-driven increase in food prices,” Nomura said.
The central bank jolted markets with a larger-than-expected 50-basis-point rate hike in its policy meeting in October, bringing its key rate to 5.5 percent.
