‘BSP may raise rates further’

To tame inflation

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may still raise interest rates further as it tries to contain inflation without worsening the economy’s slowdown, Monetary Board member Benjamin Diokno said.

In an interview with One News’ “Money Talks,” the former BSP governor said he is “not ruling out further increases,” possibly not only this year but also in 2027, as the central bank continues to assess inflation, growth, employment and global policy developments.

“Given the uncertainty, I’m not ruling out further increases. Not only this year, but maybe also next year,” Diokno said.

On June 18, the BSP’s Monetary Board raised its benchmark reverse repurchase rate by 25 basis points to 4.75 percent, its second straight hike, as inflation remained above target and price pressures showed signs of broadening.

Diokno said the decision to raise rates by 25 basis points had “overwhelming” support during the Monetary Board meeting last week, while a bigger 50-basis-point increase was “too harsh” given signs that the economy is slowing.

“We have to go slow, gradual, moderated… baby steps,” he said, adding that the BSP has to balance its price stability mandate with growth and employment concerns.

Diokno said the country is not facing stagflation under the traditional definition, but warned that the economy could appear to be in a “seemingly stagflation” situation if growth remains weak while inflation stays elevated.

However, Diokno is more optimistic than other economic managers on growth, projecting gross domestic product expansion (GDP) of around four to five percent this year and 4.5 to 5.5 percent in 2027.

But Diokno warned that infrastructure spending would likely remain weak for the rest of the year, following the slowdown in government construction in the first quarter and weaker figures in April.

“I think infrastructure will continue to lag behind,” he said. “It’s hard to restart infrastructure spending, especially with this rainy season. So, I think government construction will pick up in the first quarter of next year.”

According to Diokno, the government should focus not only on the level of spending, but also on the quality of expenditures. He added that infrastructure spending should be kept at a minimum of five percent of GDP to support long-term growth.

Meanwhile, analysts expect the BSP to continue tightening monetary policy this year, with both Nomura and Citi projecting the benchmark rate to peak at 5.25 percent.

Nomura Global Markets Research maintained its forecast for another 50 basis points in rate hikes this year, likely through two 25-basis-point increases in August and October.

It said further tightening remains warranted as headline inflation is expected to stay above the BSP’s two to four percent target range in the coming months, while core inflation could remain on an upward trajectory until the fourth quarter.

Nomura expects the tightening cycle to be short, with the BSP seen reversing course by the second half of 2027. It projects 75 basis points in rate cuts next year, which would bring the policy rate back to 4.50 percent by end-2027.

Citi likewise kept its forecast for two more 25-basis-point hikes, bringing the terminal rate to 5.25 percent by October. It said an off-cycle rate increase now appears unlikely as the BSP has become less worried about inflation expectations becoming de-anchored amid the decline in global petroleum prices.