THE Bangko Sentral ng Pilipinas (BSP) could deliver an off-cycle interest rate hike this month after higher-than-expected inflation in April, Citi Philippines said.
Consumer price growth accelerated to 7.2 percent last month from just 4.1 percent in March, exceeding market expectations and the central bank’s forecast range of 5.6 to 6.4 percent, as higher food prices offset broadly in-line energy costs.
It marked the second month of inflation breaching the 2.0- to 4.0-percent target as global oil prices surged in the wake of the US-Israel war on Iran.
Citi said the sharper increase in diesel prices relative to the 2022 energy shock — caused by the Russian invasion of Ukraine — had accelerated the transmission of higher transport and logistics costs into food prices, amplifying inflationary pressures at the consumer level.
“The upside surprise largely came from foods, whereas energy-related inflation was roughly in line with our expectation,” Citi said, noting that retail prices were rising faster than producer prices in a possible indication of supply constraints.
“We now expect an off-cycle meeting in May, where the BSP hikes 25 bps (basis points),” it added.
Citi raised its inflation forecasts to 7.3 percent for 2026 and 4.6 percent for 2027 from 5.7 percent and 3.7 percent, respectively.
The upward revision reflects expectations that global oil prices will remain elevated for longer amid continued drawdowns in global inventories, even if prices begin to ease in the coming months as geopolitical tensions stabilize.
“Second-round effects are likely to continue creeping through the economy, even if fuel prices start to reverse,” Citi said, adding that additional pressures from rising production costs, currency depreciation and potential weather disruptions such as El Niño could further sustain inflation momentum.
Against this backdrop, Citi now expects the central bank to raise interest rates three more times this year for a total of 75 basis points.
Jumbo hike possible
HSBC Global Research senior economist Aris Dacanay, meanwhile, said the latest inflation print was a “huge surprise” and exceeded even the most pessimistic projections.
“The actual figure went beyond anyone’s expectations,” he said, raising the possibility that the BSP may need to escalate its policy response more aggressively.
Dacanay said further rate hikes were increasingly likely, with the central bank potentially raising its policy rate to 6.00 percent by year-end. This path could include 50-basis-point increases as early as June and August alongside a rising risk of off-cycle tightening to smooth the adjustment process.
The April inflation surge, he said, was “perhaps big enough to put a 50-bps hike on the table.”
“The risk of an off-cycle hike is also rising if the BSP opts to have a smoother tightening cycle. A strong monetary response may be needed to support the peso and keep FX-induced inflation in check,” Dacanay added.
He expects inflation to remain elevated, with risks tilted to the upside. While global energy prices remain uncertain, he noted that the Philippines had yet to fully absorb the impact of rising food costs.
Domestic factors have so far largely driven food inflation, particularly rice, with local retail prices diverging from global trends. At the same time, global food supply pressures may intensify later due to the lagged impact of higher fertilizer costs on agricultural yields.
Under an “adverse” scenario — where oil prices stay at or above $100 per barrel through September — Dacanay expects full-year inflation to average 6.3 percent this year before easing to 4.5 percent in 2027.
Aggressive tightening could weigh on economic growth, which remains below potential. Dacanay, however, said the BSP’s primary mandate was to ensure price stability even if it comes at the expense of near-term growth.
He pointed to public investment as a more effective tool for boosting the economy, stressing the importance of ensuring the timely and efficient disbursement of capital spending.
“Ensuring the smooth disbursements of public capital is still the more efficient lever to prop up growth,” Dacanay said.
