THE BANGKO Sentral ng Pilipinas (BSP) could raise benchmark borrowing costs by as much as 50 basis points (bps) this 12 months because the oil price shock from the Iran war worsens inflation expectations.
Last week, the central bank ended its easing cycle because it hiked the important thing policy rate by 25 bps to 4.5% and signaled more rate hikes could follow to safeguard spiraling prices because of the Iran war.
“We expect BSP is prone to proceed with its monetary policy tightening, and would decide to act sooner fairly than later, especially because it had already forecast above-target inflation for 2 years over 2026 to 2027,” Deutsche Bank Research said in a note.
Deutsche Bank Research said it sees the BSP climbing rates by 25 bps at its June 18 and Aug. 27 meetings to bring the policy rate to five%.
ANZ Research said it also expects the BSP to deliver two more 25-bp rate hikes at its next two meetings.
“With BSP’s nominal policy rate now at 4.5% and inflation in April prone to be higher, the true policy rate has come down sharply closer to zero from its elevated levels earlier this 12 months. As inflation surpasses 5% 12 months on 12 months in the approaching months, the true policy rate is ready
to show negative. It will allow for an accommodative monetary policy which may support growth despite rate hikes,” ANZ Research said.
In March, headline inflation rose to a near two-year high of 4.1%, faster than the BSP’s 3.1%-3.9% forecast and a pair of%-4% goal for the 12 months.
The central bank now expects inflation to average 6.3% this 12 months and 4.3% next 12 months, each above its 4% ceiling, before returning to its tolerance range in 2028.
In an April 23 note, ING Think Asia Pacific Regional Head of Research Deepali Bhargava said the BSP is ready to tighten further in a “front loaded but measured manner” following the revision in its inflation forecasts.
“Fast but measured rate hikes are likely ahead. With inflation projected to average 6.3% in 2026, the BSP is unlikely to be done tightening,” Ms. Bhargava said.
“We now expect a further 50 bps of hikes in 2026, assuming material de-escalation within the US-Iran conflict by the tip of the second quarter. Nonetheless, should disruptions persist, and Brent prices remain above $100/bbl for many of 2026, a deeper and more aggressive climbing cycle would likely follow,” she added.
BSP Governor Eli M. Remolona, Jr. said on Friday that the central bank is ready to do whatever mandatory to contain inflation, leaving the door wide open to more rate hikes.
“The market needs to grasp that we are going to do what’s mandatory to contain inflation,” he said in an interview with Bloomberg TV. “For the time being, that looks as if a succession of modest rate hikes.”
Citibank said in its base case scenario, the BSP could have a follow-up hike of 25 bps in June before a pause.
“We expect BSP will aim to maintain real policy rates in accommodative territory given the weak place to begin of GDP growth going into the energy shock… Our June policy rate forecast of 4.75% can be around 45 bps above BSP’s existing 2027 inflation rate forecast of 4.3%, and we expect BSP will stop there,” Citibank said.
Nonetheless, Citibank said the balance of risks is higher for a further 25-bp hike in August, in comparison with a pause in June.
“A follow-up 25-bp hike in August could materialize, e.g., if BSP’s 2027 inflation forecast moves higher in the approaching months, or if BSP’s attention on exchange rate pass-through increases. To this point, we sense that BSP is just not overly concerned on the inflation impact of recent exchange rate movements,” it said.
Citibank said a further hike in August would still leave real policy rates negative for the 12 months.
“This means that even two more hikes could keep policy appropriately accommodative, consistent with the negative output gap and supply-driven nature of the shock,” it added.
For its part, BMI sees yet one more 25-bp rate hike in June to assist re-anchor inflation expectations, before pausing amid risks to growth.
‘ONE AND DONE’
Meanwhile, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the BSP’s latest hike can be “one and done.”
Mr. Chanco said they’ve also hiked its inflation forecasts to “only” 4.6% this 12 months from 4.2% previously, and three.5% in 2027 from 3.1% previously.
“If our more modest outlook is correct, then the April hike probably can be just ‘one and done,’ with the BSP’s next move prone to be a cut this time next 12 months, when the present supply shock starts to drop out of the year-over-year inflation picture,” he said. — AMCS