THE Bangko Sentral ng Pilipinas (BSP) may decide to keep interest rates steady in December after the jumbo rate hike last week before resuming monetary tightening in February 2027 as persistent inflationary pressures threaten to prolong the central bank’s fight against inflation.
International banking giant Deutsche Bank said in its latest commentary that they see “a further 25bp rate hike in BSP’s February 2027 MB meeting.”
“We think the central bank may pause in December after delivering the outsized hike in October,” Deutsche Bank said on Monday.
The BSP policymaking body Monetary Board has raised key policy rates by half a percentage point on Thursday amid worsening inflation outlook. This brought benchmark rates at a higher 5.5 percent.
Deutsche Bank said the decision reflected the BSP’s growing concern over the persistence of inflation in 2027 rather than near-term price movements.
“The October move was effectively a frontloading of tightening in anticipation of more sustained pressures next year,” it said.
The central bank retained its inflation forecast this year to 6.1 percent this but raised next year’s projection to 6.0 percent from the previous 5.4 percent.
Forecast for 2028 was also retained at 3.3 percent.
The bank said the BSP’s higher 2027 inflation forecast suggested that the peak impact of El Niño could shift to the first quarter of next year from the fourth quarter of 2026 previously expected.
Unfavorable base effects could also add to inflationary pressures, Deutsche Bank said, potentially making it more difficult for headline inflation to moderate.
The bank maintained its inflation forecast at 5.7 percent for this year and 4.2 percent next year.
It said the BSP would have January 2027 inflation data available before its February meeting, allowing them to determine whether the anticipated acceleration in prices was materializing and further monetary tightening was necessary.
“If so, the current tightening cycle may not yet be complete,” the bank said.
This, in turn, is seen delaying the recovery in domestic economic activity.
The bank cut its gross domestic product (GDP) growth forecast for the Philippines to 2.9 percent this year from 3.5 percent previously. For 2027, it lowered its projection to 5 percent from 5.8 percent.
“BSP’s hawkish stance, coupled with its higher inflation outlook, could keep business and consumer sentiment subdued,” Deutsche Bank said.
Growth slowed to 2.3 percent in the second quarter of this year, markedly lower than the 3.5 to 4.5 percent target of the government for this year.
Over-the-weekend, another international banking giant said it expects the BSP to continue with its tightening cycle up to next year.
Citi 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-Niño food inflation might persist into 2Q, it contains less risk of broadening vs. energy inflation,” it added.
