THE Bangko Sentral ng Pilipinas (BSP) is open to a larger interest rate hike if inflation risks intensify.
Asked whether the BSP could deliver a 50-basis-point increase given renewed market volatility and emerging inflation risks, BSP Governor Eli Remolona Jr. said, "there’s a chance."
While inflation has been easing after spiking to 7.2 percent in April, a resumption of hostilities in the Middle East and a weakening peso have renewed fears of higher prices.
The BSP, which has raised key interest rates twice so far this year in a bid to stabilize inflation expectations, is scheduled to hold its next policy meeting on Aug. 27.
Remolona said the central bank was reassessing the impact of several developments, including a higher-than-expected Metro Manila minimum wage hike, renewed global financial market volatility, oil price movements, exchange rate fluctuations and uncertainty surrounding US tariff policies.
He said the BSP was still estimating the inflationary impact of the wage hike and pointed out that they could have provided technical advice had this been requested.
"We were not consulted on that. There is a sort of tripartite group discussing the matter, and we're not part of it. In principle, we can offer technocratic advice, but we haven't been asked at this point," Remolona said.
The BSP chief also said that the biggest inflationary effects from the emerging risks were likely to be felt next year with a “smaller impact extending into 2028.”
Forecasting models are being refined to better take uncertainties and their impact on sentiment into account, he said.
Remolona downplayed the risks from a 12.5-percent US tariff on Philippine exports and also said that the peso’s recent weakness was primarily due to dollar gains and not structural factors.
“You're looking only at [the] peso-dollar [rate], but [in] the rest of the world, the currencies have been weakening against the US dollar," he noted.
The peso, which hit a new record low of P61.847 to the dollar last Friday amid the war in the Middle East and the US’ latest tariff announcement, closed 6.1 centavos stronger on Tuesday at P61.614:$1.
The Bank of America (BofA), meanwhile, said the BSP could order another 25-basis-point increase in the policy rate in the second half with inflation likely to stay above the 2.0- to 4.0-percent target.
"The Philippines may require further tightening as inflation stays above target," BofA said, noting that among Asean economies, the Philippines and Indonesia remain the most exposed to external shocks.
"From dovish outlook for 2026 to hawkish repricing, Asean monetary policy expectations have undergone a complete turnaround since the start of the year," it said.
"Downside growth and upside inflation risks coupled with continued foreign exchange and capital outflow pressures have contributed to calibrated tightening across the region, Indonesia and the Philippines in particular.”
For the Philippines, BofA identified rice prices and wage-driven inflation as the principal domestic risks, with inflation expectations having moderated from worst-case scenarios as oil prices had retreated.
While the BSP makes policy decisions independently of the US Federal Reserve, BofA said Fed policy developments remained important because a narrower interest rate differential could intensify capital outflows and further weigh on the peso.
“BSP policy decisions are independent of Fed action but worth watching the narrowing gap if Fed turns hawkish,” it said.
It said the Philippines’ output gap — the difference between actual and potential economic output — would remain negative through 2027, indicating that economic activity is still operating below capacity even as inflation remains elevated.
“The output gap is expected to gradually narrow by the end of 2027, supported by a recovery in investment,” BoFA added.
