Jumbo BSP rate hike still possible despite anemic Q3 growth

A jumbo rate hike may still be on the table for the Bangko Sentral ng Pilipinas (BSP) despite the sluggish economic growth in the third quarter, with the primary goal of cooling off hot inflation that has been squeezing household budgets.

In a commentary, economists at Nomura Global Markets Research said they still expect the central bank to hike its key rate by a half-percentage point to 6 percent at the Monetary Board’s next policy meeting in December.

Such a move, they said, would be needed to tame stubbornly high inflation, citing “more signs” of upward price pressures spilling over into other consumer items beyond energy and food.

Even so, Nomura said there’s still a possibility of a more measured quarter-point rate hike next month, especially if global oil prices would sustain their decline and offset the increase in food costs.

“The BSP was clear that its primary goal is to contain second-round effects and anchor inflation expectations,” the bank said, adding that the central bank already expects growth to only pick up from fourth quarter.

Data released earlier this week showed gross domestic product (GDP) had expanded by just 2.1 percent in the three months through September, the weakest pace in more than 16 years outside of the COVID-19 period.

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 3.5-percent to 4.5-percent government target for 2026 would be very challenging.

Curbing inflation

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 curb rapid inflation.

Governor Eli Remolona Jr. has said the central bank would raise rates as much as necessary to fight inflation, though he also stressed that further tightening would be less likely if the gap between the economy’s actual and potential growth would continue to widen.

In a separate note, economists at United Overseas Bank Ltd. (UOB) said the anemic growth last quarter could prompt the BSP to recalibrate its rate-hiking campaign.

Pending clearer signs of disinflation and positive developments in the Middle East, UOB expects additional quarter-point rate hikes each at next month’s meeting and in the first quarter of 2027.

“The softer GDP outturn is likely to lead the BSP to recalibrate toward a more measured tightening pace following the 50 bps hike in October, although a pause appears to be a weak case for now amid persistent inflationary pressures and continued peso weakness,” the bank added.