‘More aggressive’ rate hikes possible

Title Higher Rate Hikes Loom as BSP Cracks Whip on Inflation

The Bangko Sentral ng Pilipinas (BSP) has brought an end to its easing cycl
cycle by raising the policy rate by 25 basis points to 4.5 percent, citing 
a deterioration in the inflation outlook. However, what happens if global e
events continue to disrupt the economy? According to Deepali Bhargava, regi
regional head of research at ING Economics, the BSP may be forced to implem
implement deeper and more aggressive rate hikes.

In recent weeks, consumer price growth has surged to 4.1 percent, exceeding
exceeding the BSP's target range. With inflation forecasts raised to 6.3 pe
percent for 2026 and 4.3 percent for 2027, it appears unlikely that the cen
central bank will shy away from tightening monetary policy further.

So, why is this happening? The war in Iran has sent oil prices soaring, lea
leading to increased transportation costs and broader price pressures. As a
an oil importer, the Philippines is particularly vulnerable to global crude
crude price movements. Sustained oil price increases could trigger second-r
second-round effects, including wage adjustments and costlier goods and ser
services.

The BSP's priority is to prevent inflation from becoming more persistent. B
By acting early and decisively, the central bank can reduce the need for mo
more aggressive tightening later on. But what does this mean for the econom
economy?

Citi expects the BSP to continue tightening, but with a view of supporting 
economic growth. With a projected nominal rate of 4.75 percent in August, t
the central bank will be keeping an eye on inflation forecasts and global e
events.

So, what's next? Will the BSP crack down on inflation or wait and see how t
things play out? One thing is certain – the war in Iran has thrown a wrench
wrench into the economy's plans, and it remains to be seen how this plays o
out in 2026.

Keywords rate hikes, BSP, inflation, oil prices, economic growth.

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CEO / Co-Founder

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