THURSDAY’s 25-basis-point (bp) rate hike indicates a shift in the Bangko Sentral ng Pilipinas’ (BSP) focus to supporting economic growth, HSBC said, with three more identical increases likely for the rest of the year.
“[W]e thought inflation concerns would outweigh concerns about low growth,” HSBC senior Asean economist Aris Dacanay said in a note on Friday, as “price stability is the BSP’s primary mandate after all.”
HSBC, which had expected an aggressive 50-bp adjustment, said it now expected “a more measured tightening cycle,” with 25-bp increases likely during the three remaining policy meetings this year.
“After that, we expect the BSP to kick-start its easing cycle in 2H 2027 (the second half of next year), bringing its policy rate down to 5.25 percent by year-end.”
The central bank’s benchmark rate currently stands at 4.75 percent following Thursday’s increase. HSBC lowered its 2026 forecast to 5.50 percent from 6.00 percent, while that for next year was previously 5.25 percent.
HSBC said the BSP’s policymaking Monetary Board had taken the opportunity to moderately tighten with a peace deal having been signed by the United States and Iran, which would lead to a reopening of the Strait of Hormuz and lower oil prices.
“Inflation risks may still be high, but not as high as they were last week,” it noted.
The Monetary Board’s move to raise its forecasts for inflation, which is now expected to remain above the 2.0- to 4.0-percent target throughout 2027, was said to support the greater emphasis on growth.
Monetary authorities now expect inflation to average 6.4 percent this year and 4.7 percent in 2027, up from 6.3 percent and 4.3 percent, respectively. The rate was forecast to return to target in 2028 at 3.1 percent.
“Despite this (the higher inflation forecasts), the BSP opted for a modest 25-bp hike to 4.75 percent over a punchier 50-bp increase, perhaps reflecting the growth challenges brought about by tight fiscal policy,” Dacanay wrote.
“These growth concerns were confirmed by Governor [Eli] Remolona [Jr.] during the press conference,” he added.
A more measured tightening, however, still carries risks and HSBC pointed out that Remolona said that an off-cycle increase or a 50-bp hike was still on the table.
The BSP chief told reporters on Thursday that uncertainty was not a big issue for now, thus the “baby steps, so that if something unexpected happens you can always adjust.”
The Monetary Board, he added, “can always have an off-cycle meeting.”
“We can do 50 basis points if necessary.”
HSBC said three risks would have to be monitored: rice price increases due to the El Niño weather pattern, a reescalation of tensions in the Middle East that will lead to oil prices rising anew, and a US Federal Reserve turning hawkish and raising its own rates.
“Any of the three, if they materialize, would risk increasing inflation expectations for 2027 even further, or risk FX- (foreign exchange) induced inflation,” Dacanay said.
“This might then require a more aggressive monetary response.”
For now, however, he said “the BSP will likely take the opportunity to walk instead of run.”
The Monetary Board will next meet to discuss policy on Aug. 27. Its last two meetings for 2026 will be on Oct. 22 and Dec. 17.
