Philippines central bank seen extending rate hikes as inflation risks keep policy hawkish

Traders Union
All News
Regulators
Philippines central bank rate hike

Highlights

Philippines headline inflation surged to 7.2% in September, prompting expectations for a fourth consecutive 25-basis-point BSP policy rate hike to 5.25% this week.
Nomura notes sluggish GDP growth at 2.3% in Q2 and 2.6% in H1, with public expenditures up 8.01% year-on-year to P4.271 trillion by end-August.
Both Nomura and Deutsche Bank expect BSP to prioritize inflation control with another 25-basis-point rate increase, keeping reserve requirement ratio cuts as a longer-term goal.

Inflation outlook points to another BSP move

As reported by BusinessWorld, citing Nomura, the Bangko Sentral ng Pilipinas remains "decisively hawkish" after September inflation accelerated faster than expected, with headline inflation at 7.2% and core inflation at 4.7%. The Japanese financial group said concerns over higher energy, fertilizer and food costs, together with the potential impact of El Niño in the coming months, are supporting expectations for a fourth straight 25-basis-point increase.

Nomura said investors at its research forum in Bangkok focused on the BSP's balance between inflation and growth, as well as its foreign exchange policy. Its analysts expect a 25-basis-point rise on Thursday that would bring total tightening to 100 basis points and lift the key policy rate to 5.25%, while a recent BusinessWorld poll showed most analysts also expect a quarter-point increase.

The BSP last raised its benchmark rate in August, when it delivered a third consecutive 25-basis-point hike to 5% and signaled it was acting against risks from volatile global oil prices, wage increases and a looming Super El Niño. Governor Eli M. Remolona, Jr. also says the central bank may keep lifting rates as needed to bring inflation back toward its 3% target, while the state weather bureau says a strong El Niño is active in the Tropical Pacific and could intensify until December before lasting into the first half of 2027.

Weak growth complicates policy path

Nomura said the BSP appears only slightly restrictive because weak domestic demand is limiting how far it can tighten, even as inflation stays above the 2% to 4% target. Economic growth has been sluggish since the second half of 2025, with gross domestic product expanding 2.3% in the second quarter and averaging 2.6% in the first half, below the government's 3.5% to 4.5% full-year goal.

Even so, Nomura said the central bank still sees room for a recovery beginning in the fourth quarter of 2026, helped by an expected pickup in government spending. Public expenditures rose 8.01% year on year to P4.271 trillion by end-August, equivalent to 66.05% of the government's full-year spending program, and Nomura said that trend could increase the risk of further hikes beyond this week if inflation pressures persist.

The bank also said the BSP is likely to keep reserve requirement ratio cuts as a longer-term objective rather than an immediate priority, arguing that preserving credibility under its inflation-targeting framework comes first. In a separate report, Deutsche Bank also expects a 25-basis-point increase on Thursday, saying the current stance may still be insufficiently restrictive to anchor inflation expectations before the Monetary Board's final policy review of the year on Dec. 17.

In our earlier coverage of Philippine sovereign bond market reforms, we explained how the shift to a new pricing convention for peso government bonds and planned index inclusion could broaden the investor base and improve liquidity. We also noted that cheaper funding and stronger inflows are not automatic, and that the payoff depends on global rates, fiscal credibility, and whether broader structural reforms deepen corporate financing and productivity gains.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.