THE Bangko Sentral ng Pilipinas (BSP) is likely to raise its policy rate by another 25 basis points (bps) before the end of the year as higher oil prices and continued peso weakness add to inflation risks, S&P Global Ratings said.
“We anticipate some central banks will further increase policy rates this year to contain inflation and support exchange rates,” S&P said in its latest Asia-Pacific economic outlook.
“In our baseline outlook, where the inflation and exchange rate pressures are not severe, we expect the tightening to be modest,” it added.
S&P expects the BSP's policy rate to end 2026 at 5.25 percent, implying another quarter-point increase before the year ends.
The central bank last raised its benchmark rate by 25 bps in August, bringing the target reverse repurchase rate to 5.0 percent. It has two meetings left in October and December.
S&P said the central bank could start easing next year, bringing its policy rate down to 4.5 percent, followed by another 50-bps cut to 4.0 percent in 2028.
It said inflation and currency pressures across Asia-Pacific had eased somewhat during the third quarter but remained significant, particularly as US interest rates stayed relatively high.
"The majority of Asia-Pacific currencies are still weaker against the US dollar than at the start of the year," S&P said, noting that the currencies of India, Indonesia, the Philippines, and Thailand had each lost more than 5.0 percent against the dollar through mid-September.
The ratings agency said the gap between relatively low Asian policy rates and US interest rates leaves regional economies vulnerable to capital outflows, adding to pressure on central banks to respond.
The agency stressed, however, that its baseline scenario assumes inflation and exchange-rate pressures will not become severe enough to require aggressive monetary tightening.
S&P said higher oil prices have already pushed up inflation across the Asia-Pacific, although the increase remains generally manageable.
It expects oil prices to cause a modest further increase in inflation and said food prices could also come under pressure from El Niño.
For the Philippines, S&P sees consumer price inflation averaging 5.5 percent in 2026, up sharply from 1.7 percent in 2025. It expects inflation to ease to 3.6 percent in 2027.
PH economy seen growing below potential
S&P sharply cut its 2026 Philippine gross domestic product (GDP) growth forecast to 2.9 percent, from its previous estimate of 4.1 percent.
“In the Philippines, weak public spending and squeezed household incomes are constraining the economy,” S&P said.
It also lowered its growth forecasts for 2027 and 2028 to 5.4 percent and 6.0 percent, respectively, from its earlier projections of 5.8 percent and 6.2 percent.
For 2029, S&P expects the Philippine economy to grow by 5.8 percent.
