MANILA, Philippines — Economists are unanimous that the Bangko Sentral ng Pilipinas (BSP) will raise interest rates anew at its policy meeting on June 18, but opinions are divided on the size of the increase as inflation continues to run well above target despite easing slightly in May.
Most economists polled by The STAR expect the BSP to extend its tightening cycle to rein in inflationary pressures. Four economists expect the BSP to deliver a 50-basis-point hike, while five others are betting on a more measured 25-bp increase.
HSBC senior ASEAN economist Aris Dacanay said inflation risks remain the bigger concern for the BSP despite sluggish economic growth.
“We think that risks are tilted toward inflation more than growth – or at least when it comes to the risks that the BSP has control over,” Dacanay said.
“Like Bank Indonesia in May, we expect the BSP to draw out a jumbo 50-bp rate hike next week, bringing its policy rate to five percent.”
Dacanay said May’s softer inflation print did little to alter the broader outlook, noting that the easing was largely driven by lower oil prices and could prove temporary amid continued geopolitical tensions in the Middle East.
He added that food inflation risks linked to higher fertilizer prices and the looming El Niño remain a concern, while a more aggressive monetary stance could help temper exchange rate volatility and support the peso should the US Federal Reserve turn more hawkish.
Standard Chartered Bank Asia economist Jonathan Koh likewise expects the BSP to raise rates by 50 bps to five percent.
Koh said inflation remains the central bank’s primary concern despite softer domestic growth, pointing to sticky underlying price pressures, continued peso depreciation and upside risks from energy and food prices.
He said the BSP is likely to maintain a hawkish stance in the near term, with another 25-bp increase possible in August before policy easing begins in 2027 once inflation returns to the BSP’s two- to four-percent target range.
Inflation eased to 6.8 percent in May from 7.2 percent in April, but remained well above the BSP’s target range. Meanwhile, core inflation accelerated to 4.1 percent, keeping pressure on policymakers to tighten further.
BPI lead economist Jun Neri also expects a 50-bp hike, saying the BSP needs to “catch up with inflation and reinforce its commitment to price stability.”
“Second-round effects, such as services inflation picking up, have yet to fully materialize and could lead to broader price increases once passed on to consumers,” Neri said.
He added that the BSP also has to prevent excessive currency volatility as the peso remains under pressure and the gap between inflation and policy rates remains wide.
Neri said the softer inflation print in May should be viewed “less as an opportunity to delay further tightening and more as a chance for the BSP to demonstrate its commitment to price stability and counter perceptions that it is behind the curve on inflation.”
RCBC chief economist Michael Ricafort is also betting on a 50-bp hike, citing inflation risks stemming from El Niño, elevated fertilizer prices, peso weakness and potential disruptions in global energy supplies.
“BSP policy would still go up further to 5.50 to six percent to be ahead of the curve and to help stabilize the peso exchange rate versus the dollar and importation costs,” Ricafort said.
Meanwhile, a number of economists expect the BSP to proceed more cautiously. Chinabank chief economist Domini Velasquez said the central bank could raise rates by only 25 bps to 4.75 percent.
She said while inflation remains above target and price pressures have broadened to services, “the pace of tightening is likely to remain measured” as overly aggressive rate hikes could further weigh on an economy already grappling with weak consumer and business sentiment.
Chinabank forecasts inflation to settle at 5.7 percent and core inflation at four percent this year. However, negative business expectations, high underemployment rate and a weak manufacturing sector all point to a slowing economy.
“Hence, we think that the BSP has limited room to tighten monetary policy. This policy cycle will be focused on ensuring that inflation expectations will remain anchored more than crimping domestic demand further,” Velasquez said.
Security Bank chief economist Angelo Taningco also expects a 25-bp increase next week, followed by another quarter-point hike in August.
He said inflation remains above target amid the peso’s depreciation, even as economic growth has slowed. Taningco also flagged rising household and corporate debt, as well as higher bad loans, as key factors that could complicate the BSP’s policy path.
UnionBank chief economist Ruben Carlo Asuncion also sees a 25-bp increase, although he said a larger move remains a possibility.
“The Monetary Board’s decision will likely be driven by the need to anchor inflation expectations, alongside risks from global commodities — particularly oil — and exchange rate movements,” Asuncion said.
Metrobank chief economist Nicholas Antonio Mapa likewise sees a quarter-point hike, but said the softer inflation print has “closed the door on overzealous aggressive tightening for now.”
“Monetary policy actions are largely less impactful against supply side inflation and rate hikes will weigh on fast fading growth momentum without having any meaningful impact on this kind of inflation,” Mapa said.
Reyes Tacandong & Co. senior adviser Jonathan Ravelas also expects the BSP to raise rates by 25 bps on June 18, with similar moves possible at every meeting through the end of the year.
Ravelas said the central bank has little room to pause without risking its credibility, as it prioritizes anchoring inflation expectations and maintaining macroeconomic stability despite slower growth.
The BSP last month raised benchmark rates by 25 basis points to 4.50 percent, its first hike since October 2023, as it sought to prevent supply-side shocks from spilling over into inflation expectations.
After June 18, the Monetary Board will next meet on Aug. 27 to discuss policy.