PH inflation shock revives bets on BSP rate hikes
A sharp acceleration in inflation to a three-year high in September could force the Bangko Sentral ng Pilipinas (BSP) to consider raising interest rates again, analysts said, even as they expect the central bank to begin cutting rates next year to shore up an economy struggling to gain momentum.
In a commentary, Euben Paracuelles and Nabila Amani, economists at Nomura Global Markets Research, said the BSP could deliver another quarter-point rate increase at its Oct. 22 meeting, with further increases possible after that.
The expected move would come after fresh data showed that consumer prices rose 7.2 percent from a year earlier in September, the highest reading since March 2023, as weather-related disruptions to food supplies combined with higher oil prices. The increase exceeded market expectations and was more than twice the central bank’s 3-percent inflation target.
Core inflation, which strips out volatile food and energy prices to provide a clearer measure of underlying price pressures, also climbed to a nearly three-year high of 4.7 percent.
Paracuelles and Amani said the sharp pickup in core inflation could signal that price pressures were broadening, prompting the central bank to consider further tightening.
“However, we see the balance of risk to our inflation forecast as tilted to the upside, due to the possibility of a strong El Niño in coming months, which could exacerbate the impact on already-high food inflation, especially if oil prices rise again,” they added.
Back to target
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 was prepared to raise rates as much as necessary to bring inflation back to target and keep inflation expectations anchored.
“BSP is likely to err on the side of caution and maintain a tightening bias to contain inflation expectations until it is confident that inflation is on a durable path back to target,” Deepali Bhargava, head of Asia-Pacific Research at ING Bank, said.
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.
Julia Goh and Loke Siew Ting, economists at United Overseas Bank, said the BSP could raise its policy rate by a total of 75 basis points between October and the first quarter of 2027, taking the rate to 5.75 percent and keeping it there for the rest of next year. They said the revised forecast was also consistent with their updated outlook for the US Federal Reserve.
Separately, economists at BMI, a unit of Fitch Group, said easing inflation could eventually give the BSP room to cut rates late next year.
“As the current high base enters the comparison along with dissipating supply-side pressures, we expect inflation to return to the BSP’s 2 to 4 percent target range by fourth quarter,” they said. “We maintain our forecast for 50 basis points of rate cuts in the fourth quarter, which will leave the policy rate at 4.75 percent by end-2027.”
