Philippines rate hike bets rise as October inflation accelerates

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Philippines rate hike on inflation

Highlights

October inflation in the Philippines accelerates beyond the BSP target for an eighth consecutive month, raising the year-to-date average to 5.6% and core inflation to 5.4%.
Economists including Nomura and GlobalSource Partners see increasing odds of a 50-basis-point BSP hike in December, especially with transport inflation at 20.1% and housing, utilities, and fuel up 9.3%.
Growth concerns and a median Q3 GDP estimate of 2.7%—below last year’s 3.9%—are tempering expectations for a jumbo BSP move, though future hikes remain possible if inflation or the peso worsens.

Inflation data sharpens case for December tightening

As reported by BusinessWorld Online, economists say the faster October inflation print is increasing the likelihood that the Bangko Sentral ng Pilipinas, or BSP, opts for another 50-basis-point increase at its final policy meeting of the year, although views remain split over whether softer growth may limit the move.

GlobalSource Partners country analyst Diwa C. Guinigundo says a standard 25-basis-point increase may not be enough as price pressures become broader and more persistent. He says transport inflation jumps to 20.1%, while housing, utilities and fuel rise 9.3%, indicating that inflation is no longer confined to food.

University of Asia and the Pacific economist Marco Antonio C. Agonia also sees higher risk of a 50-basis-point move after inflation accelerates in October, adding that hotter core inflation raises the odds of an off-cycle adjustment if the peso weakens sharply. Mr. Guinigundo says an off-cycle hike remains unlikely, but adds that the threshold for such action is now lower if inflation deteriorates further.

Headline inflation stands above the BSP target for an eighth straight month and exceeds the previous 7.2% peaks recorded in April and September, bringing the year-to-date average to 5.6%. Core inflation, which strips out volatile food and energy items, accelerates to 5.4% from a revised 4.8% in September and 2.5% a year earlier.

The Monetary Board raises its key policy rate by 50 basis points last month to 5.5%, extending tightening to a fourth straight meeting and bringing cumulative increases since April to 125 basis points. Nomura analysts Euben Paracuelles and Nabila Amani say they now expect an additional 75 basis points of tightening, made up of a 50-basis-point move in December and a 25-basis-point increase in the first quarter of 2027, while also lifting their inflation forecasts for both headline and core measures.

Growth concerns temper scope for another jumbo move

Even with inflation running hot, some economists say weak domestic growth may keep the BSP from delivering another large increase in December. The central bank currently projects inflation to average 6.1% this year, 6% in 2027 and 3.3% in 2028, and Mr. Guinigundo says those forecasts may still be revised higher after the October reading.

S&P Global Market Intelligence principal economist Harumi Taguchi says the BSP may return to a smaller quarter-point increase in December as oil prices ease and global market volatility persists. She says concerns about damaging an already fragile economy also support a less aggressive pace of tightening.

A BusinessWorld poll of 16 analysts produces a median estimate of 2.7% for third-quarter gross domestic product growth, ahead of the 2.3% recorded in the second quarter but below the 3.9% pace a year earlier. The Philippine Statistics Authority is due to release the third-quarter GDP report on Nov. 9, a data point economists say could materially influence the central bank's next move.

BSP Governor Eli M. Remolona, Jr. says the central bank remains on a tightening path as inflation continues to run hot, though a wider negative output gap based on third-quarter growth would reduce the odds of additional hikes. Capital Economics Asia economist Gareth Leather says the BSP may leave rates unchanged on Dec. 17 unless GDP surprises on the upside, November inflation remains strong or the peso comes under renewed downward pressure.

Our earlier article on Philippine stocks and the peso noted that the PSEi rebounded on bargain hunting after recent losses, even as overall sentiment stayed cautious. It also highlighted the peso sliding to a record low near P63 per dollar, with investors closely watching currency moves and broader macro conditions.

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