BSP widely expected to hike rates by 25 bps

Benchmark rate goes up to 5 percent

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is widely expected to raise interest rates for a third straight meeting on Thursday as above-target inflation, a weak peso and mounting external risks outweigh concerns over a sharp slowdown in economic growth.

Nine of 13 economists polled by The STAR expect the BSP’s Monetary Board to deliver another 25-basis-point hike on Aug. 27, which would bring the benchmark interest rate to five percent.

The remaining four economists expect the BSP to keep the key policy rate unchanged at 4.75 percent, citing easing inflation, weak domestic demand and the economy’s disappointing second-quarter performance.

HSBC senior ASEAN economist Aris Dacanay said another hike would allow the BSP to build a buffer against both inflation and foreign exchange risks.

“We expect the BSP to lift rates by 25 bps to five percent to build a buffer for inflation and forex risks amid dwindling reserves. But we do not think this is a ‘one and done’; risks to inflation remain heavily skewed to the upside, warranting caution,” Dacanay said.

Headline inflation eased for a third straight month to 6.2 percent in July from 6.4 percent in June. Still, it remains well above the BSP’s two to four percent target range.

Dacanay noted that inflation expectations have risen among both consumers and businesses, while renewed peso weakness could add to imported price pressures.

The peso weakened to nearly 62 to the dollar last week, while gross international reserves declined to about $103 billion in July.

BPI lead economist Jun Neri likewise expects a quarter-point hike, arguing that inflation risks are increasingly extending beyond food.

“We expect the BSP to deliver a 25-bp rate hike at Thursday’s policy meeting, with inflation risks remaining tilted to the upside despite the recent moderation in headline inflation,” Neri said.

He cited risks from monsoon rains and flooding, elevated fertilizer costs, a possible El Niño episode, volatile oil prices and higher labor costs from the planned wage adjustment in Metro Manila.

Neri said a weaker peso could also amplify imported inflation at a time when the country’s external buffers have declined.

Citi similarly maintained its forecast for 25-bp hikes in both August and October, although it acknowledged the growing possibility that the BSP could pause at its October meeting if inflation forecasts are revised lower or growth weakens further.

Metrobank chief economist Nicholas Mapa also expects two more quarter-point hikes this year, which would bring the policy rate to 5.25 percent by year-end.

“Above target inflation means BSP will have to hike. Soft gross domestic product (GDP) means they only do a 25-bp increase,” Mapa said.

RCBC chief economist Michael Ricafort likewise sees the rate reaching 5.25 percent by end-2026, arguing that further tightening could help stabilize the peso, manage inflation expectations and keep policy ahead of the inflation trajectory.

Others see the next increase as the final hike of the year.

UnionBank chief economist Ruben Carlo Asuncion, Security Bank chief economist Angelo Taningco and Reyes Tacandong & Co. senior adviser Jonathan Ravelas all expect a 25-bp move.

Asuncion said a final hike “would reinforce the BSP’s commitment to price stability while retaining room for greater policy flexibility thereafter.”

Moody’s economist Sarah Tan also sees the odds tilted toward a hike, although she described the decision as a close call given the weak economy.

The Philippine economy expanded by just 2.3 percent in the second quarter, its weakest growth since the pandemic, sharpening the trade-off facing monetary authorities.

That slowdown forms the core of the case for economists expecting the BSP to stay on hold.

Chinabank chief economist Domini Velasquez said subdued domestic demand and moderating headline and core inflation give policymakers room to wait.

“It is a close call, but we think the BSP has room to hold. With growth weakening, demand-side inflation pressures subdued and inflation showing signs of moderation, the cost of another immediate hike may outweigh the benefit of front-loading policy tightening,” Velasquez said.

She still sees room for one additional hike in the fourth quarter should inflation risks worsen.

PNB economist Alvin Arogo expects a “hawkish hold,” saying the 2.3-percent GDP expansion, easing headline inflation and moderation in core inflation to 4.2 percent support a pause.

Ateneo Center for Economic Research and Development director Ser Percival Peña-Reyes also favors keeping rates steady, saying the BSP should assess the cumulative impact of earlier tightening while retaining flexibility if inflation pressures re-emerge.

“Keeping rates unchanged would still represent a restrictive monetary stance, and the BSP could clarify that future decisions will depend on whether inflation continues its path back toward the target range or whether new inflationary pressures emerge,” Peña-Reyes said.

Standard Chartered’s Jonathan Koh likewise expects the BSP to remain at 4.75 percent for the rest of 2026.

“I think the BSP is still going to remain hawkish. But because growth is really slow, demand inflation is soft, I think that the central bank could potentially look past supply-side driven inflation, as long as inflation expectations remains anchored,” Koh said.

The Aug. 27 meeting therefore presents the Monetary Board with an increasingly difficult balance: containing inflation and supporting the peso without placing further pressure on an economy that has already lost considerable momentum.