THE BANGKO SENTRAL ng Pilipinas (BSP) may hike by as much as 50 basis points (bps) amid lingering spillover price effects despite the softer-than-expected headline inflation in May, economists said.
In a commentary on Monday, Deutsche Bank Research economist Junjie Huang said a bigger rate increase could also be warranted as last month’s easing inflation is probably going short-lived, with renewed price pressures looming from electricity, food and other basic goods.
“Our view of BSP mountaineering by 50 bps within the June MB (Monetary Board) meeting is unchanged as we expect the lower print may only be temporary — and it continues to be materially above BSP’s 2-4% goal — as broad price pressures are still build up within the economy, and our outlook for global inflation dynamics continues to be elevated,” he said.
Nonetheless, HSBC Senior ASEAN Economist Aris D. Dacanay said the BSP may not be compelled to tighten sooner than scheduled, contrary to prior expectations following the central bank chief’s off-cycle hint last month.
“We expect this final result removes the urgency of doing an off-cycle rate hike,” he said in a separate commentary on Monday. “As of this writing, May CPI (consumer price index) has provided some relief to the peso, minimizing the necessity to tighten monetary policy now to mitigate the chance of FX (foreign exchange)-induced inflation.”
Still, Mr. Dacanay anticipates a 50-bp rate hike on the Monetary Board’s meeting next week, though noted that the downward surprise from May inflation has raised the percentages of a 25-bp move.
BSP Governor Eli M. Remolona, Jr. said last month that they’re considering an off-cycle tightening, citing risks of the central bank falling behind the curve amid broadening second-order price effects. He added, nonetheless, that they can also wait until their June 18 meeting to evaluate the May inflation data.
The May inflation reading bucked projections, with the headline print cooling to six.8% from the over three-year high of seven.2% in April, undershooting the 7.9% median estimate in a BusinessWorld poll of 16 economists and the BSP’s 7.1%-7.9% forecast.
Nonetheless, core inflation, which discounts volatile food and energy prices, breached the central bank’s goal for the primary time in two-and-a-half years. It hit 4.1% in May, the quickest core inflation because the 4.4% recorded in December 2023.
For Maybank analysts Azril Rosli and Suhaimi Ilias, this implies the second-order effects of oil shocks are widening and becoming more persistent.
“While the BSP has consistently highlighted the limited effectiveness of monetary policy in addressing supply-driven shocks, the continued rise in core inflation suggests that second-round effects are gaining traction, particularly across transport, housing, utilities, and services-related sectors,” they said in a commentary dated June 5.
In April, the Monetary Board reversed its easing cycle by raising the important thing policy rate by 25 bps to 4.5%, because it sought to contain broadening spillover effects and anchor inflation expectations.
Prior to the MB’s April 23 meeting, Mr. Remolona also noted that they were attempting to focus more on controlling the core print and inflation for the underside 30% of income households.
Patrick M. Ella, a portfolio manager and an economist at Sun Life Investment Management and Trust Corp., said headline inflation still risks breaching the double-digit mark by July or August.
“However the essential point there’s (that) the core inflation (is) still climbing,” he told Money Talks with Cathy Yang on One News on Monday. “In order that tells you that the second-round effects that the BSP is will certainly carry over within the succeeding months.”
Mr. Ella didn’t rule out a 50-bp increase on the June 18 review, but noted that a smaller 25-bp hike could also be more definite.
Meanwhile, Nomura Global Markets Research now sees Philippine inflation averaging 5.5% by yearend, slower than its 6.1% earlier estimate, if Brent crude oil trades at a mean $98.4 per barrel this 12 months.
“Considering the lower-than-expected outturn (in May), we reduce our 2026 headline CPI forecast to five.5% after raising it to six.1% only last month, partly reflecting the fluctuations in global crude oil prices and the fast pass-through to domestic retail fuel prices within the absence of subsidies,” Nomura research analysts Euben Paracuelles and Nabila Amani said in a report.
Nonetheless, Mr. Paracuelles and Ms. Amani said the impact of the expected El Niño season later this 12 months risks stoking inflation, particularly food prices.
They expect the central bank to proceed tightening this 12 months before easing anew by the second half of 2027.
“We expect BSP will view any further increase in core inflation as an indication of second-round effects that require vigilance,” the Nomura analysts said. “Nonetheless, we expect no off-cycle meeting by BSP and only measured 25-bp hikes in each of the subsequent three meetings starting on June 18, consistent with peaking headline inflation.”
Last week, the BSP reaffirmed its commitment to bring inflation back to its 3% goal using all essential monetary policy measures as a part of its price stability mandate.
The Monetary Board still has 4 regular meetings left this 12 months, scheduled for June 18, Aug. 27, Oct. 22 and Dec. 17. — Katherine K. Chan