Consensus builds for further BSP rate increases

The Bangko Sentral ng Pilipinas may have to raise its policy rate higher to rein in high inflation and help support the weakening peso, analysts said.

In a note to clients, economists at Deutsche Bank said the inflation flare-up in September prompted them to expect another quarter-point rate hike at the BSP’s Oct. 22 meeting.

The German banking giant said price pressures have intensified since the BSP’s last tightening action back in August, which may prompt policymakers to stay hawkish to bring inflation back to their 3-percent target.

Latest data showed consumer price gains hit a three-year high of 7.2 percent in September following a troublesome mix of weather-related food supply woes and higher global oil prices.

“The risk of the BSP extending its policy tightening cycle is elevated, as the current policy stance may not be sufficiently restrictive to effectively anchor inflation expectations,” Deutsche Bank said.

“If key upside risks materialize in late-2026 and into 2027, we think the BSP could be compelled to raise the policy rate by another 25bp (basis points), terminal at 5.50 percent. However, additional rate hikes beyond October 2026 are not yet in our baseline view,” it added.

The BSP has raised its benchmark interest rate by a quarter percentage point three times since April, bringing it to 5 percent. Governor Eli Remolona Jr. has said the central bank is prepared to raise rates as much as necessary to bring inflation back to target and keep inflation expectations anchored.

But the central bank must also weigh the weakness of the economy, which grew just 2.6 percent in the first half as consumption slowed amid war-related pressures and government spending remained subdued following a crackdown on corruption.

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Eduardo Francisco, president of BDO Capital & Investment Corp., said the BSP would likely avoid aggressive rate hikes that may further weigh on the economy and hurt borrowers. Any additional tightening would likely be limited to what is needed to prevent the peso from falling to fresh record lows, he said.

Francicso said the local currency may appreciate to around 60 to 62 against the US dollar by the end of the year, though he noted that a hawkish US Federal Reserve (Fed) may also prompt more BSP rate hikes to stem the peso’s depreciation.

“If the Fed increases the rate and we don’t do anything, the peso will depreciate,” he said. “But the signal from the BSP is they will defend inflation and growth.”