THE Bangko Sentral ng Pilipinas (BSP) may further raise interest rates in the first quarter of 2027 as persistent inflationary pressures and the potential impact of El Niño threaten to prolong the central bank’s monetary tightening cycle, economists said over the weekend.
The BSP policymaking body Monetary Board has surprised the market on Thursday last week with a jumbo rate hike of 50 basis points, bringing the rates at a higher 5.5 percent.
Bank of the Philippine Islands lead economist Emilio Neri Jr. said the larger rate hike was “timely and appropriate” given the increasingly challenging inflation environment.
“It sends a strong message that the BSP remains committed to price stability, which should help in managing inflation expectations,” he said.
However, Neri argued that further monetary tightening remained possible in the first quarter of next year, depending on how inflation develops, particularly if El Niño causes more severe weather disruptions than expected.
Should those disruptions intensify price pressures, the tightening cycle could extend into the first half of 2027, he said.
Economists at international banking giant Citi also expects another quarter-point rate hike in December 2026 and in early 2027, bringing the policy rate to a terminal level of 6.0 percent, saying elevated fuel prices are likely to drive further broadening of inflation.
“We continue to see a broadening of inflation lasting into early 2027,” Citi said.
Citi said a 6.0 percent terminal policy rate in early 2027 would be 1.3 percentage points above the average of the BSP’s 2027 and 2028 inflation forecasts and 2.7 percentage points above its 2028 forecast.
This suggests the central bank sees the need for a higher neutral interest rate than the 1.0 to 2.0 percent range observed in previous tightening cycles.
“For now we do not see rate hikes extending beyond Feb as inflation probably will have peaked into April,” Citi said.
“And even though some El-Nino food inflation might persist into 2Q, it contains less risk of broadening vs. energy inflation,” it added.
Chinabank Research, meanwhile, said that monetary policy is not the “most effective tool” for addressing supply-side pressures stemming from El Niño, transport fare adjustments, and food prices.
“Although the case for further tightening will depend on incoming inflation and growth data, the BSP’s elevated inflation outlook suggests another rate hike by December remains increasingly likely,” Chinabank Research said.
It said the BSP may delay monetary easing until late 2027 or even early 2028 if its inflation forecasts materialize.
