BSP may not be done hiking rates as inflation risks mount
The Bangko Sentral ng Pilipinas (BSP) may have more interest rate increases in store as it battles stubbornly high inflation, analysts said, a move that could change how Filipinos spend, save and invest.
In a note to clients. Jojo Gonzales, research analyst at Bank of America, said the Monetary Board may deliver two more quarter-point rate hikes each at their next meetings in December and February as the inflation outlook worsens.
“The BSP remains concerned of potential inflationary pressures from resurgent oil prices, the impact of El Niño on food prices, and possible cost pressures from the wage increase,” Gonzales said.
The BSP on Thursday surprised the market with a half-point increase to its policy rate to 5.5 percent.
Only two of 20 economists polled by the Inquirer anticipated the move, as policymakers opted for a more forceful response against hot inflation.
It was the BSP’s fourth rate increase this year, bringing cumulative hikes since April to 125 basis points.
Speaking to reporters, Governor` Eli Remolona Jr. admitted that the BSP was “kind of” behind the curve despite its previous tightening actions.
Remolona also said the BSP was open to further raising interest rates.
For ordinary Filipinos, higher borrowing costs could mean more expensive credit card balances and bank loans, including those used to buy homes and cars.
Banks typically use the BSP’s benchmark rate as a guide in setting their own lending rates, although the timing and extent of adjustments vary among lenders.
The other side of the equation is savings.
Higher policy rates can eventually translate into better returns on bank deposits, giving savers more incentive to keep their money in the bank. But deposit rates do not always rise immediately or by the same amount as lending rates.
Stock investors, meanwhile, could face headwinds.
Higher borrowing costs can weigh on corporate earnings by making it more expensive for businesses to finance operations and expansion.
Still, a rate hike does not automatically spell losses for equities.
If investors see the move as a credible response to inflation, it could help ease concerns about persistent price pressures and provide businesses with a more predictable economic environment.
Meanwhile, prices of existing bonds generally fall when interest rates rise because newly issued debt may offer higher yields.
For those buying new bonds, higher interest rates can mean better yields, offering an opportunity to lock in more attractive returns.
In a separate note, BMI, a unit of the Fitch Group, said inflation could peak in the first quarter of 2027 before falling below 4 percent by the fourth quarter––which could give the BSP enough space to reverse course and start lowering interest rates.
“We therefore expect the [central] bank to ease by 50 basis points to 5.25 percent by end-2027,” BMI said.
