BSP seen extending rate hikes to curb inflation

The Bangko Sentral ng Pilipinas (BSP) is expected to raise interest rates further to tame stubbornly high inflation despite the weak economic growth seen in the third quarter, analysts said, as policymakers prioritize their mandate of keeping price stability.

In a note, Bank of America (BofA) said economic growth may have bottomed out in the three months through September, when gross domestic product (GDP) expanded by just 2.1 percent.

The economy could grow by a faster 2.5 percent in the final quarter of 2026 before staging a stronger recovery, with growth reaching 3.5 percent in 2027, the firm said.

Inflation, meanwhile, could remain above the BSP’s 3-percent target until late next year. BofA expects consumer prices to rise by an average of 6 percent this year and 5.2 percent in 2027.

This could prompt the central bank to deliver another quarter-point rate increase at each of its December and February policy meetings, BofA said.

In a separate note, BofA said that while the peso has already recovered from record lows, the medium outlook on the currency would not improve unless global oil prices fall below the $70 level given the country’s status as a net energy importer.

“We do not think the soft GDP print in the third quarter alters the path of monetary policy as the BSP is focused on inflation, rather than growth of the peso-dollar rate,” the bank added.

Government data showed the sluggish growth in the third quarter was the worst in more than 16 years, excluding the meltdown seen during the COVID-19 years.

Persistently weak household spending and investment amid high inflation continued to crimp expansion, with policymakers admitting that achieving at least the low-end of the state’s 3.5-percent to 4.5-percent target for 2026 would be very challenging.

Ahead of the data release, the BSP last month raised its policy rate by 50 basis points (bps) to 5.5 percent, an aggressive move meant to choke off rapid inflation.

In a separate commentary, economists at Singapore-based DBS Bank Ltd. said the Philippines already is experiencing a stagflationary impulse—a troublesome combination of high inflation and weak growth.

Even so, they still expect the BSP to raise the policy rate by 50 bps more by the first quarter of 2027.

“Surge in inflation has pushed the real rates to red this year, despite the central bank’s move to frontload rate hikes,” they said.