THE Bangko Sentral ng Pilipinas (BSP) may have to further tighten policy to address peso and inflation pressures even if this weighs on economic growth, a Cabinet official said.
“I’m sure they (BSP) are monitoring the situation. So if they need to tighten, they should tighten,” Socioeconomic Planning Secretary Arsenio Balisacan told reporters last week.
“Because it’s true that they would have to, and I believe that they are acting in a way to address the volatility of the peso short term, they do not [have to] compromise the long term,” he added.
The BSP’s policymaking Monetary Board has raised key interest rates three times this year, by a total of 75 basis points to 5.0 percent, in a bid to keep inflation expectations anchored after the rate blew past the 2.0- to 5.0-percent target earlier this year in the wake of the war in the Middle East.
With growth having slowed to 2.3 percent in the second quarter, well below the government’s 3.5- to 4.5-percent target, and the peso hitting successive record lows to past P62 per dollar, Balisacan said. Malacañang’s announcement last week that fiscal discipline would be pursued was the way forward.
The government’s fiscal response, however, should not simply involve cutting spending across the board, he added.
Balisacan said authorities would need to improve the quality of government spending and prioritize programs that generate greater economic and social impact to keep the economy afloat.
Bank of the Philippine Islands senior economist Emilio Neri Jr., meanwhile, said the BSP still had room for two more rate hikes this year given the likelihood of a second-semester growth rebound.
“An economic recovery beginning in the second half of 2026 could give the BSP more room to adjust its policy rate further if needed,” he said.
Favorable base effects following a decline in public spending that began in the third quarter of 2025 could boost growth and strengthen the case for keeping further monetary tightening on the table, he added.
Concerns over inflation may not be over yet, Neri continued.
Consumer price growth slowed to 6.1 percent last month from 6.2 percent in July but remained well above target. The BSP has lowered its 2026 forecast to 6.1 percent from 6.4 percent but raised that for 2027 to 5.4 percent from 4.5 percent.
Inflation is only expected to return to the 2.0- to 4.0-percent target range in 2028 at 3.3 percent.
“With inflation still elevated and the outlook uncertain, keeping the door open to further rate adjustments may be necessary to keep inflation expectations anchored,” Neri said.
The BSP could still hike in the last two policy meetings of 2026, he said, likely by 25 basis points each time and bringing the policy rate to 5.50 percent.
“Additional hikes later on will depend on the severity of El Niño,” Neri said.
“The BSP will likely keep rates steady for most of 2027, with further increases possible should the impact of El Niño prove more severe than currently anticipated.”
