SLOWER-THAN-EXPECTED May inflation is unlikely to deter the Bangko Sentral ng Pilipinas (BSP) from further tightening policy, with analysts still penciling in a jumbo rate cut next week.
“Our view of BSP hiking by 50bp (basis points) in the June MB (Monetary Board) meeting is unchanged as we think the lower print may only be temporary,” Deutsche Bank Research said in a commentary on Monday.
The BSP’s policymaking Monetary Board, which ended an easing cycle in April and raised key interest rates by 25 basis points to 4.5 percent, is scheduled to meet on June 18.
Surging inflation due to the Middle East war had prompted the tightening. Consumer price growth, which breached the BSP’s 2.0- to 4.0-percent target in March and hit 7.2 percent in April, unexpectedly slowed to 6.8 percent last month.
Deutsche Bank said inflation may have slowed, but it remains well above target as price pressures continue to build across the economy and global risks stay elevated.
“Underlying measures of inflation do not suggest cooling momentum,” it added.
While lower fuel prices helped ease transport costs in May, Deutsche Bank warned that several major inflation drivers remained in place, suggesting that the slowdown could prove short-lived.
The bank revised its inflation forecast for 2026 to 6.2 percent from 6.5 percent. It also slightly lowered its 2027 forecast to 4.1 percent from 4.2 percent — still marginally above target.
HSBC Global Research senior economist Aris Dacanay, meanwhile, said May’s downside surprise raised the likelihood of a more measured 25-bps hike on June 18. It could also push the year-end policy rate slightly below a 6.0-percent baseline.
However, he also said: “We continue to believe that a jumbo 50bp policy rate hike to 5.00 percent is still on the table during the BSP’s scheduled rate-setting meeting.”
Dacanay noted that core inflation had continued to rise, suggesting that second-round effects were still playing out.
With the BSP projecting inflation at 4.3 percent in 2027, a policy rate of at least above 5.50 percent may be needed to keep real interest rates at appropriate levels, he added.
“The BSP has four meetings left in the year, which means one meeting may need to be an outsized 50bp rate hike,” Dacanay said.
Inflation may have peaked
Nomura Global Market Research, on the other hand, said headline inflation had likely peaked in May but added that core inflation could still go up.
Core inflation, which strips out volatile food and energy items, rose to 4.1 percent in May from 3.9 percent in April.
The increase reflected continued pass-through effects from elevated energy costs to other sectors of the economy, particularly discretionary spending categories such as recreation, restaurants and accommodation services.
Nomura said the continued rise in core inflation suggested that second-round effects from higher fuel and energy costs were still spreading through the economy.
“We think BSP will view any further increase in core inflation as a sign of second-round effects that require vigilance,” it said.
“Nonetheless, we expect no off-cycle meeting by BSP and only measured 25bp hikes in each of the next three meetings starting on 18 June, consistent with peaking headline inflation.”
