THE Bangko Sentral ng Pilipinas (BSP) today could raise interest rates, likely for the last time this year, as it balances persistent inflation risks against slowing economic growth
“Our economists are expecting BSP to hike, probably its last hike in the hiking cycle while GDP (gross domestic product) growth slowed,” Bank of America (BofA) said in a commentary on Wednesday.
The central bank’s policymaking Monetary Board, which has raised key interest rates twice to tame inflation, will likely hike its target reverse repurchase rate by another quarter point to 5.0 percent.
BofA said the BSP faced a difficult policy trade-off with inflation, with inflation still well above the 2.0- to 4.0-percent target while economic growth has weakened sharply.
Inflation, which hit a three-year high of 7.2 percent in April, has slowed for the last three months but remains above target at 6.2 percent as of July. Gross domestic product (GDP), meanwhile, expanded by just 2.3 percent in the second quarter, well below the government’s 3.5- to 4.5-percent goal for 2026.
BSP Governor Eli Remolona Jr. has said the weaker growth had given the central bank room to be less aggressive in tightening monetary policy.
BofA said the Philippines’ monetary-policy decision would be particularly sensitive to movements in oil prices and the dollar because of the country’s relatively high exposure to both.
“Given their relatively higher betas with oil and dollar, their tightening decision would likely be contingent upon oil and USD swings in the near-term,” it said.
It added that the global backdrop had become more challenging for Asian central banks as the US-Asia interest-rate gap had widened.
“India, Indonesia and Philippines managed to hike their rates enough to stay above Fed’s, suppressing capital outflows and depreciation pressure on their currencies,” BofA said.
“Notably, only these three countries ... currently enjoy a policy rate advantage over [the] US,” it added.
For the Philippines, this rate advantage could provide some support for the peso. However, BofA cautioned that the currency remained sensitive to external shocks, particularly oil prices and dollar movements.
The peso has already come under pressure in recent weeks. The currency almost hit P62:$1 last week amid Middle East tensions and uncertainty over US interest rates.
Meanwhile, BofA said that “Asia’s inflation shock seemingly moderated, providing an apparent signal that the worst of inflationary pressures have been behind us.”
However, the bank warned that underlying cost pressures remained firm and that Asian economies continued to face risks from oil-price swings, weather-related shocks, a hawkish Federal Reserve and broad-based dollar strength.
For the Philippines, these risks could complicate the BSP’s efforts to bring inflation back toward its target without further weakening domestic demand.
