ELEVATED inflation pressures and the peso hitting a record low last week could prompt the Bangko Sentral ng Pilipinas (BSP) to raise key rates by another quarter-point on Thursday.
Nine economists polled by The Manila Times said the BSP’s Target Reverse Repurchase (RRP) Rate could be raised by another 25 basis points to 5.25 percent.
The BSP’s policymaking Monetary Board, which has raised key interest rates three times so far this year due to above-target inflation, is scheduled to meet on Oct. 22.
At its monetary policy meeting last Aug. 27, the Monetary Board decided to raise the BSP’s RRP Rate by 25 basis points to 5.0 percent. The interest rates on the overnight deposit and lending facilities were also adjusted to 4.5 percent and 5.5 percent, respectively.
The central bank said the possible impact of severe El Niño conditions on agricultural prices pose further upside risks to inflation. Potential wage adjustments also warrant close monitoring, including their implications for broader price setting and second-round effects.
Consumer price growth remained elevated, rising to 7.2 percent in September due to higher prices of key food items and energy costs.
The September figure brought average inflation for the first nine months of 2026 to 5.4 percent, remaining above the BSP’s 2.0- to 4.0-percent target.
Core inflation, which excludes selected food and energy items, likewise rose to 4.7 percent from 4.1 percent in August and 2.6 percent a year earlier.
Jumbo rate hike likely
Bank of the Philippine Islands (BPI) lead economist Emilio Neri Jr. said the recent peso weakness, which hit P63.06 on Thursday, could strengthen the case for additional rate hike this week and in December meeting.
“The magnitude of the rate hike next week will likely depend on the behavior of the peso in the coming days,” Neri said.
“If the peso depreciates further and moves closer to 64, the BSP may consider a 50 basis point hike on Thursday,” he added.
He argued that a larger hike could be viewed as “pre-emptive move” against second round effects and risks of de-anchoring inflation expectations.
“Regardless of whether the BSP delivers a 25 or 50 bp hike next week, the balance of risks increasingly points to further tightening in the next 6 months,” Neri said.
Sun Life Investment Management and Trust Corp. economist Patrick Ella said there was a 93.6-percent probability of a rate hike on Thursday, with a 25-basis-point increase seen as the most likely outcome.
However, Ella argued that a larger 50-basis-point hike also remain a possibility.
“Elevated inflation is the driving force behind this as core has climbed significantly vs September,” Ella said.
Rizal Commercial Banking Corp. chief economist Michael Ricafort also said that the central bank could deliver another rate hike to help stabilize the peso exchange rate.
Final hike likely
Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco said the central bank will likely opt to deliver a 25-bps rate hike only.
He argued that the inflation rate last month “turned out to be relative to expectations” and this will be “the last increase, unless a new supply-side inflation shock arises.”
Philippine National Bank economist Alvin Arogo said this could be the “end of the current tightening cycle as focus shifts to 2027.”
He said they expect inflation returning below 4.0 percent by the third quarter of next year, but cautioned that the outlook remains vulnerable due to higher oil prices.
“While our baseline assumes geopolitical tensions ease around the November US elections, a sustained increase in crude oil prices could still justify another 25 bps hike in December,” Arogo said.
Chinabank economist Domini Velasquez also said that a 25-bps rate hike on Thursday could be the “final hike of the cycle.”
“With the economy remaining weak, a lower 2027 inflation forecast and limited response of the peso to previous rate hikes could strengthen the case for October’s hike to be the final one in the current tightening cycle,” Velasquez said.
Velasquez said that the earlier preemptive tightening could provide some buffer against second-round inflationary pressures.
No hikes in 2027
HSBC Global Research senior economist Aris Dacanay said they expect the central bank to remain a “hawkish tone to rein inflation expectations.”
“The risk of inflation breaking out of its cage is too large to ignore,” Dacanay said, which could prompt for more rate hikes.
“We maintain our long-held view that the BSP will raise rates again in December, to 5.50 percent,” he added.
“Though we have no rate hikes penciled in for 2027, the risk of a deeper tightening cycle cannot be ruled out,” he continued.
Union Bank of the Philippines chief economist Ruben Carlo Asuncion also said that while growth and domestic demand remain soft, the central bank will continue to prioritize inflation.
“We believe the BSP will prioritize anchoring inflation expectations and preventing broader price pressures from becoming entrenched,” Asuncion said.
ING Economics also said that the outlook remains skewed to the upside amid uncertainty over “El Niño-related food supply disruptions, elevated energy prices, peso weakness, and potential second-round effects from higher wages and food costs.”
“BSP is likely to err on the side of caution and maintain a tightening bias to tame inflation expectations until it’s confident prices are on a path back to target,” it said.
