Economists see more interest rate hikes as inflation risks persist

MANILA, Philippines — Economists expect the Bangko Sentral ng Pilipinas (BSP) to raise interest rates again in December, with some seeing further tightening in early 2027 as persistent inflation, elevated oil prices and peso depreciation continue to threaten price stability.

Analysts from Citi, Oxford Economics, Security Bank and Chinabank Research see another rate increase as increasingly likely following the Monetary Board’s larger-than-expected 50-basis-point hike last week, which brought the benchmark interest rate to 5.50 percent.

While Citi, Oxford Economics and Security Bank expect another 25-basis-point increase in December, their outlooks diverge for next year. Citi sees the policy rate climbing to six percent by February 2027, while Oxford Economics expects the BSP to hold rates steady after December. Chinabank, meanwhile, sees the possibility of monetary easing being delayed until late 2027 or early 2028.

The BSP’s benchmark interest rate influences borrowing costs across the economy, with higher rates intended to curb demand and prevent inflation from becoming more entrenched.

The central bank’s latest move marked its fourth consecutive rate hike this year, bringing cumulative increases to 125 basis points as authorities sought to contain broadening price pressures and prevent inflation expectations from rising further.

In its latest assessment, Citi said the BSP’s more aggressive monetary tightening reflected growing concerns over the persistence of inflation, particularly as elevated fuel prices feed into transport costs, food distribution and other goods and services.

“We call for at least a 25-bp hike in December, followed by another 25-bp hike in the first meeting of 2027 which we expect would be in February,” Citi said. This would bring the policy rate to six percent by early 2027.

However, it warned that the benchmark rate could climb as high as 6.25 percent if the peso depreciates more sharply in the coming months, potentially prompting a larger 50-basis-point increase in December.

The bank expects inflation to peak around April next year, with monetary easing potentially beginning in late 2027 or early 2028 as price pressures gradually subside.

Headline inflation accelerated to 7.2 percent in September from 6.1 percent in August, while core inflation, which excludes volatile food and energy items, rose to 4.7 percent from 4.1 percent.

Similarly, Oxford Economics expects another 25-bp increase in December as higher food and energy prices generate stronger second-round effects, or the broader impact of initial price increases on wages, transport fares and other goods and services.

Oxford Economics assistant economist Jun Hao Ng said he expects inflation to average 5.9 percent this year and 4.5 percent in 2027, with the peso’s depreciation further strengthening the case for continued monetary tightening.

He also noted that the country’s gross international reserves fell by 8.8 percent year-on-year in September to their lowest level in three years, adding to concerns over the economy’s external position.

Meanwhile, Security Bank chief economist Angelo Taningco also anticipates a 25-basis-point increase at the Monetary Board’s Dec. 17 meeting, bringing the policy rate to 5.75 percent.

Taningco said the central bank’s larger-than-expected October adjustment appeared aimed at containing accelerating inflation and rapid peso depreciation.

Security Bank expects inflation to remain above seven percent in the final three months of 2026, averaging 7.4 percent in the fourth quarter, before moderating next year.

Given the BSP’s ongoing monetary tightening campaign, Security Bank also no longer expects a reduction in banks’ reserve requirement ratio (RRR) this quarter.

The RRR refers to the portion of deposits that banks must maintain as reserves rather than lend out. Security Bank now expects the ratio to remain at five percent instead of being reduced by 200 basis points as previously anticipated.

Chinabank likewise said another rate hike in December was becoming increasingly likely, although the case for further tightening would depend on incoming inflation and economic growth data.

However, Chinabank cautioned that monetary policy may have limited effectiveness in addressing supply-driven inflation arising from El Niño, transport fare adjustments and higher food prices.

It also pointed out that minimum wage adjustments have been more moderate than initially expected, while the extent to which government spending could support domestic economic activity in the second half of the year remains uncertain.