BSP set to tighten this week, tone matters next

From AB Capital's The Opening Bell: Three Moves

Event

We expect the Bangko Sentral ng Pilipinas (BSP) to deliver another 25bp hike this Thursday, taking the policy rate to 5.0%, in line with 19 of 24 analysts surveyed. July inflation eased to 6.2%, but remains above target, while renewed peso weakness and food price risks keep inflation concerns elevated.

View

We think the weak 2Q26 gross domestic product (GDP) print limits the case for a larger move, but does not yet justify ending the tightening cycle. GDP slowed to 2.3%, while core inflation eased only modestly to 4.2%, leaving the BSP focused on inflation persistence and keeping expectations anchored.

Catalyst

The key signal will be Governor Remolona's guidance. A hawkish tone emphasizing food, oil, peso and second-round risks would support our additional 25bp hike assumption, taking the terminal rate to 5.25% by year-end. Softer guidance would raise the probability that Thursday marks the final hike.

Action

In our view, a 25bp hike is largely anticipated, so market reaction should depend more on the forward guidance. Confirmation that further tightening remains possible would keep pressure on rate-sensitive property and discretionary names, while an earlier pause could support valuations, provided inflation and the peso continue stabilizing.

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.