By Katherine K. Chan, Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) could hike its key policy rate to as high as 5.5% by end-2026 as inflation pressures intensify amid the Philippines’ high exposure to the energy crisis, Fitch Solutions unit BMI said.
Based on its latest forecasts obtained by BusinessWorld, BMI now expects the Philippine central bank to deliver a further 100 basis points (bps) in rate hikes at its remaining policy meetings this yr.
The research firm earlier said the BSP will likely cap its tightening cycle once the benchmark rate of interest hits 5%, because the country’s weak growth prospects hinder further hikes.
The revision got here as BMI now sees the country’s headline inflation averaging 6.1% in 2026, higher than its 5.6% estimate earlier this month and three.1% projection before the Middle East war erupted in late February.
If realized, inflation will settle above the central bank’s 2%-4% goal but below its 6.3% projection for the yr.
Yen Nee Lee, senior Asia country risk analyst at BMI, noted that the rapid transmission of oil shocks to the Philippine economy led the research firm to make its biggest forecast revisions for the country versus other Asian countries.
“Growth was already weak coming into the crisis, but inflation has shot up and compelled the hands of the central bank,” she said on Tuesday. “And this also explains why our forecast revisions for the Philippines are our biggest across the region.”
Prior to the Iran war, the Philippine economy posted its weakest growth because the COVID-19 pandemic at 4.4% in 2025 because the flood control mess fallout dampened local investments and spending.
Growth continued to melt for a 3rd straight quarter because the gross domestic product (GDP) expanded by 2.8% within the January-to-March period from 3% within the previous quarter and 5.4% in the primary quarter of 2025.
The economy is predicted to stay weak as red-hot inflation amid the energy crisis tightens household spending.
In April, inflation accelerated to its fastest pace in three years at 7.2% as elevated oil prices continued to feed into the prices of major commodities corresponding to food, transport and utilities. This marked the second month in a row that the headline clip breached the BSP’s goal.
Economic managers have warned that the spillover effects of the energy crisis could still spread in the approaching months, keeping inflation elevated all year long.
For BMI, this might also mean that Philippine GDP growth will are available in at a full-year clip of three.9%, the worst within the post-pandemic era and below the federal government’s 5%-6% goal.
Ms. Lee noted that the Philippines’ constrained fiscal space leaves it no selection but to permit domestic fuel prices to reflect soaring global prices.
She said she was surprised how quickly the Philippine economy has been hit by the oil shocks.
On the Monetary Board’s decision to face pat in an off-cycle meeting in late March, Ms. Lee said this likely signaled that the BSP prioritized economic growth over inflation on the time.
“But one month later, when growth concerns became arguably more pronounced, the central bank ended up mountaineering rates, essentially deciding that it cannot ignore the feed-through of upper energy prices to inflation,” Ms. Lee said. “So, this shows how quickly things can change and the way an emerging market can get caught in a really tough spot.”
At its April 23 meeting, the Monetary Board raised its policy rate by 25 bps to 4.5%, marking its first hike since October 2023, because it sought to temper second-round price effects and keep inflation expectations anchored amid mounting risks from the Middle East war.
BSP Governor Eli M. Remolona, Jr. left the door open to additional hikes as they aim to bring inflation back to the three% goal, even hinting at a possible off-cycle tightening before their June policy review.
Meanwhile, Nomura Global Markets Research still expects the central bank to lift the policy rate by a further 75 bps, starting with a second straight 25-bp hike on June 18.
If realized, this could bring the benchmark rate to five.25% by yearend.
“We predict BSP will remain measured and a hike off-cycle is unlikely because the output gap stays negative and political uncertainty is rising, which could still affect the fiscal outlook,” Nomura Chief ASEAN Economist Euben Paracuelles and economist Nabila Amani said in a note dated May 26.
Nomura kept its growth forecast for the Philippines at 4.6% this yr, with recovery to begin by the second half, after latest government data showed an uptick in noninterest spending.
In line with the Bureau of the Treasury, the country’s budget balance swung to a P31.4-billion surplus in April from the P349.7-billion gap seen in March. This was also narrower than the P67.3-billion surfeit recorded last yr.
The federal government’s noninterest spending, or primary expenditure net of interest payments, climbed 8.22% to P441.9 billion from P408.3 billion a yr ago.
“This improvement tracks the previous episode of severe fiscal contraction in 2011, which we called the ‘bad scenario’ to which today’s episode might be comparable,” the Nomura analysts said. “Using the identical playbook, the rise in noninterest expenditure growth is prone to proceed, helped partially by the federal government’s catch-up spending plans.”
Mr. Paracuelles and Ms. Amani said the economy’s expected rebound later this yr will allow the BSP to make use of its monetary policy tools mainly to curb inflation.
The Monetary Board is scheduled to carry 4 more regular policy meetings this yr on June 18, Aug. 27, Oct. 22 and Dec. 17.