‘More BSP rate hikes possible’

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may still deliver more rate hikes this year after raising borrowing costs for a second straight meeting, although economists are divided on whether the central bank will keep tightening or pause as soon as oil prices ease and growth weakens.

HSBC, Capital Economics and ING expect further rate increases while Pantheon Macroeconomics said the central bank may be inclined to pause. 

The Monetary Board on Thursday raised the target reverse repurchase rate by 25 basis points to 4.75 percent, bringing total hikes so far to 50 basis points. 

HSBC senior ASEAN economist Aris Dacanay said the BSP’s move was “modestly hawkish,” but marked a shift toward giving more weight to growth risks. 

“We now expect a measured tightening cycle, with the policy rate increasing to 5.50 percent by year-end,” Dacanay said.

This was lower than HSBC’s previous forecast of six percent by end-2026. The bank earlier expected a stronger 50-basis-point hike at the June meeting, but said the easing in oil prices after the US-Iran deal gave the BSP room to tighten more moderately. 

Capital Economics deputy chief emerging markets economist Jason Tuvey said the BSP’s communication remained hawkish, especially as core inflation continued to rise and price pressures broadened.

“On balance, we expect BSP to deliver at least one more 25-basis-point hike to five percent in August,” Tuvey said. “Beyond that, much will depend on the incoming inflation data and moves in the peso.”

Inflation eased to 6.8 percent in May from a three-year high of 7.2 percent in April as fuel prices declined. However, core inflation rose further to 4.1 percent, exceeding the BSP’s two to four percent target band.

Tuvey said headline inflation could fall in the coming months if the US-Iran deal holds and the drop in oil prices is sustained. He also noted that the peso has recovered some ground, rising nearly two percent against the dollar since the start of the month.

ING regional head of research for Asia-Pacific Deepali Bhargava said the BSP’s 25-basis-point hike reinforced its preference for steady and incremental tightening to anchor inflation expectations without causing undue market disruption.

She said the BSP’s tone was cautious rather than alarmist, with policymakers focused on second-round effects, food prices and core inflation rather than the initial oil shock. 

“While the situation is not a cause for panic, it is also far from resolved. In our view, the BSP is not losing sleep over this, but neither can it confidently say the worst is over, keeping policy firmly in watch-and-act mode,” she said.  

ING maintained its forecast of another 50 basis points in rate hikes this year, saying a deeper and more sustained decline in oil prices would be needed for the BSP to rethink further tightening.

Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco had a more dovish take, saying the BSP “quietly opens the door to a rate pause.” 

Pantheon expects the BSP to keep the policy rate at 4.75 percent through end-2026 before cutting it to 4.25 percent by end-2027. 

“From our vantage point, the worst of the inflation shock is over and, unlike Indonesia, economic growth in the Philippines is in no position to stomach any more unnecessary tightening,” Chanco said. 

Pantheon also lowered its inflation forecasts to 5.3 percent for 2026 and 3.1 percent for 2027 from 5.5 percent and 3.2 percent, respectively, due to expected downside risks to oil-linked inflation and easing rice prices.