By Katherine K. Chan, Reporter
BENCHMARK interest rates will likely rise further until early 2027 as red-hot inflation warrants further tightening by the Bangko Sentral ng Pilipinas (BSP), according to economists.
In a report, Japanese financial giant Nomura said the BSP may deliver 75 basis points (bps) more in hikes to push the policy rate to 6.25% by February amid accelerating headline and core inflation.
“We pencil in another outsized 50-bp hike at the next Monetary Board meeting in December, taking into account our forecasts of headline CPI (consumer price index) inflation of around 7% in the next two months (which will be released prior to the Monetary Board decision), and core inflation also continuing to pick up, which BSP will likely interpret as second-round effects increasing,” Nomura research analysts Euben Paracuelles and Nabila Amani said.
“At the following meeting in Q1 2027 (likely in February), we pencil in a winding down to a 25-bp hike, partly based on our assumption of declining Brent crude oil prices,” they added.
On the other hand, New Zealand-based ANZ Research sees two more 25-bp rate increases to extend the BSP’s tightening cycle to six straight meetings.
“With the real policy rate remaining negative, we believe further tightening is warranted. We now expect the BSP to raise the policy rate by 25 bps at its next two meetings, taking the terminal rate to 6% in Q1 2027,” ANZ Chief Economist Sanjay Mathur and Foreign Exchange (FX) Analyst Kausani Basak said in a separate report.
“Risks to our revised forecast are still tilted to the upside and will depend primarily on the severity of the El Niño’s impact on food prices and the trajectory of crude oil prices,” they added.
At its Oct. 22 meeting, the central bank delivered a surprise 50-bp rate hike, bringing its benchmark rate to a nearly two-year high of 5.5%.
This was the first 50-bp hike in nearly four years or since February 2023, when the central bank sought to prevent inflation from breaching its target the following year.
It also marked the BSP’s fourth consecutive meeting in which it tightened its monetary policy, bringing its total increases since April to 125 bps.
BSP Governor Eli M. Remolona, Jr. had said they acted more aggressively than usual as accelerating inflation amid persistent and emerging pressures has pushed them slightly behind the curve.
Fresh surges in fuel, food, housing and utility prices drove headline inflation to its fastest pace in three-and-a-half years at 7.2% in September from 6.1% in August, matching this year’s peak first recorded in April.
The headline print has been above the central bank’s 3% target for a seventh straight month, bringing the year-to-date average to 5.4%.
Core inflation, on the other hand, accelerated to a nearly three-year high of 4.7%. This excludes volatile food and fuel prices.
The central bank forecasts inflation to end at 6.1% this year and 6% next year before cooling down to 3.3% in 2028.
DECEMBER HIKE
Chinabank Research said that the BSP’s inflation concerns strengthened the case for a fifth consecutive rate hike in December, but noted that further tightening might not address supply-driven pressures.
“Nevertheless, we maintain that monetary policy is not the most effective tool for addressing supply-side pressures stemming from El Niño, transport fare adjustments, and food prices,” it said.
“Although the case for further tightening will depend on incoming inflation and growth data, the BSP’s elevated inflation outlook suggests another rate hike by December remains increasingly likely,” it added.
If the BSP’s latest inflation outlook holds, monetary easing could be pushed back to late 2027 or early 2028, Chinabank Research noted.
On the other hand, Security Bank Corp. is also projecting a one quarter-point policy rate increase in December, but struck further reserve requirement ratio (RRR) cuts off its outlook for this year.
“(Mr.) Remolona added that the BSP does not want to cut the RRR at this time when the BSP is still conducting monetary tightening,” Security Bank Chief Economist Angelo B. Taningco said in a separate report. “In this regard, we no longer anticipate a 200-bp RRR cut this fourth quarter 2026, and thus, foresee the RRR to remain unchanged at 5%.”
The BSP last cut universal and commercial banks’ RRR by 200 bps to 5% in February 2025. Digital banks’ RRR was likewise reduced by 150 bps to 2.5%, while thrift banks’ RRR was lowered by 100 bps to 0%. The cuts took effect in the week of March 28.
PESO RISKS
Meanwhile, Citigroup, Inc. (Citi) is pricing in one 25-bp hike each at the central bank’s next two meetings in December and February as it projects inflation and foreign exchange risks to persist until early next year.
“Elevated oil prices now do not just impact BSP’s inflation assessment through the traditional first and second-round effects (e.g. food logistics and transport fares), but also through the FX pass-through channel as a result of terms of trade deterioration. Recall that Citi’s terms of trade index for the Philippines has worsened in October even relative to 2Q26,” Citi said in an e-mailed note.
“And as geopolitical risks and oil prices may stay high post-US midterms, we continue to see a broadening of inflation lasting into early 2027,” it added.
However, Citi said the BSP could also end its tightening cycle after delivering a second straight 50-bp hike in December if the peso’s depreciation accelerates toward the yearend.
Oxford Economics likewise noted that the peso’s sustained weakness calls for additional rate hikes from the BSP even as the economy remains sluggish.
“The peso’s depreciation to a record low in October further strengthens the case for continued policy support against imported inflation, particularly as gross international reserves fell by 8.8% year on year in September to their lowest level in three years,” Oxford Economics Assistant Economist Jun Hao Ng said in a separate report.
“Despite the weak growth outlook, we expect the BSP to prioritize containing inflation. We therefore forecast another 25-bp hike at the BSP’s December meeting, followed by a hold through 2027,” he added.
The peso hit fresh record lows for five consecutive trading days last week. On Friday, it slumped to a new historic trough of P63.615 against the dollar after falling by 9.5 centavos from its P63.52 close on Thursday.
Year to date, the peso has declined by P4.825 or 7.58% from its P58.79 finish on Dec. 29, 2025.
Mr. Remolona last week said they do not tighten monetary policy to support the peso. He reiterated that their FX market intervention remains limited to preventing sharp inflationary swings.
The Development Budget Coordination Committee expects the peso to hold between P60 and P62 against the greenback until 2030.
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