THE Bangko Sentral ng Pilipinas (BSP) could raise interest rates twice more this year even as the economy slows, Citi said, elevated inflation risks continue to outweigh growth concerns.
Citi expects the central bank to deliver 25-basis-point (bp) hikes inAugustandOctoberdespite second-quarter (Q2) gross domestic product (GDP) growth hitting a lower-than-expected 2.3 percent.
The current policy rate of 4.75 percent remains too low relative to the central bank’s inflation outlook, it said, even as weaker economic activity has reduced pressure to further tighten.
“No change in ourBSPrate call,” Citi said in a commentary.
“The policy rate at 4.75 percent seems at a too-thin margin, in our view, overBSP’s 2027 inflation forecast of 4.5 percent published in June,” it added.
TheBSP’s policymaking Monetary Board has so far raised key policy rates by a total of 50 bps this year to tame inflation, which despite slowing for a third straight month in July remains well above the 2.0- to 4.0-percent target.
Central bankGovernorEli Remolona Jr. earlier this week said weak economic growth had eased pressure on theBSPto raise rates, but also said that monetary authorities could still hike “as much as necessary” to drive inflation nearer the target range.
Citi, however, said the improvement in inflation — the rate slowed to 6.2 percent last month after hitting a three-year high of 7.2 percent in April — was not enough to change its rate outlook.
It noted that during theBSP’s previous three tightening cycles, terminal policy rates were generally between 1 and 2 percentage points above expected inflation for the following year.
It acknowledged that the weaker growth momentum in the current cycle warranted a lower terminal real policy rate.
Citi expects the Philippine economy to recover in the third quarter but does not see a sharp or V-shaped rebound.
The bank forecast growth to return to the low 3-percent range in July-September, supported by easing inflation that should allow household real incomes and consumption to recover.
Citi said remittance inflows from the Middle East may not recover quickly, potentially limiting household spending. It also noted that a minimum wage hike in Metro Manila had been hit by delays, which could postpone the boost to household purchasing power.
The bank also warned that consumption headwinds could return in the fourth quarter if an El Niño event causes inflation to accelerate.
“Consumption headwinds could also reemerge in 4Q if the El Niño leads to a resurgence of inflation, even though the impact of any rice shock should not be as broad-based as an energy shock,” Citi said.
“Separately, we think that investment growth quarter on quarter should begin to expand in 3Q as the government kick-starts public projects, after governance guardrails are enacted,” it added.
Citi retained its 3.2-percent full-year growth forecast for 2026, still below the lowered 3.5- to 4.5-percent target of the government for the period.
