THE Bangko Sentral ng Pilipinas (BSP) may have to extend its rate hiking cycle following a sharp acceleration in inflation, analysts said.
The central bank is expected to raise its benchmark interest rate by another 25 basis points to 5.25 percent later this month, with more likely to follow amid broadening consumer price pressures.
“We believe BSP will remain focused on containing these risks and anchoring inflation expectations, which suggests its hiking cycle could become more extended than our current baseline forecast,” Nomura Global Market Research said in the latest commentary.
Inflation surged to 7.2 percent in September from 6.1 percent a month earlier. It was the fastest pace in over three years and brought the year-to-date average to 5.4 percent, well above the BSP’s 2.0- to 4.0-percent target range.
More concerning for monetary policy, analysts said, is the rise in core inflation, which excludes selected food and energy items, and is viewed as a gauge of underlying price pressures.
Core inflation rose to 4.7 percent in September from 4.1 percent in August and 2.6 percent a year earlier. It was the highest reading since late 2023.
Nomura said the increase supported its view that second-round effects from the energy price shock were becoming more significant, with rising food prices potentially adding to those pressures.
BMI Country Risk & Industry Research said price pressures remained broad-based, which “indicates that oil prices will remain higher for longer, with heightened risk of second-round effects.”
Second-round effects occur when an initial increase in the prices of commodities such as oil and food starts to spread to other goods and services as businesses pass higher input and operating costs on to consumers.
This prompted BMI to raise its inflation forecast to 5.9 percent for this year from 5.7 percent. It also raised the 2027 inflation projection to 5.0 percent from 4.7 percent.
Nomura noted that several components of the core inflation basket accelerated in September, including recreational services, restaurant and accommodation services, and personal care, and other goods and services.
“This supports our view of continued and still-significant second-round effects from the energy price shock, which rising food prices may be starting to exacerbate,” it said.
ING Economics also said that the country’s “inflation battle is far from over.”
“Inflationary pressures are spreading across a wider range of food categories rather than remaining concentrated in rice,” it said.
ING stressed that the full impact of El Niño was yet to be felt and was likely to become more evident at the end of 2026 and early 2027, “increasing the risk that food inflation remains elevated for longer and entrenching a more persistent inflation cycle.”
“We maintain our call for Bangko Sentral ng Pilipinas to hike rates by 25bp in the fourth quarter of this year,” it said.
“BSP is likely to err on the side of caution and maintain a tightening bias to contain inflation expectations until it is confident that inflation is on a durable path back to target.”
However, BMI said that weak economic growth should limit monetary tightening beyond October.
“As flagged in our earlier analysis, high frequency indicators point to a lackluster Q3 (third quarter),” it said.
“Aggressive tightening would increase the strain on activity.”
