Off-cycle hold: BSP navigates inflation, growth trade-offs
From AB Capital's The Opening Bell: Three Moves
Event
The BSP held an off-cycle Monetary Board meeting and decided to keep the policy rate unchanged at 4.25%, reflecting a fast-changing and uncertain environment. We think this signals a preference to hold policy steady despite rising inflation pressures driven largely by supply-side shocks.
View
Inflation projections have been revised higher, with 2026E now seen at 5.1% and 2027E at 3.8%, reflecting higher oil, electricity, transport, and fertilizer costs. In our view, second-round effects are becoming more evident, with April prints possibly approaching 5%, raising near-term policy risks.
Catalyst
In our view, monetary policy faces clear limitations in addressing supply-driven inflation, while growth risks are rising. GDP growth for 2026E has been revised down to 4.4%, and the BSP may rely more on liquidity tools, although their effectiveness remains limited.
Action
Looking ahead, we think the policy path has become more conditional and scenario-driven. While a prolonged pause is preferred, risks of tightening remain if inflation expectations de-anchor, with Php weakness near P60/US$ and elevated oil prices increasing sensitivity of policy to inflation dynamics.
Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.
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