The Bangko Sentral ng Pilipinas (BSP) may deliver two more consecutive rate hikes, despite slowing headline inflation, according to a recent report. The central bank's key policy rate could climb to 5.25% by October, the highest in one-and-a-half years.
Headline inflation eased to a three-month low of 6.4% in June, while core inflation, which strips out volatile food and fuel prices, quickened for a sixth straight month to a near three-year high of 4.4%. Measures of underlying inflation show that the process of broadening price pressures is still underway.
Deutsche Bank Research economist Junjie Huang expects this process to continue in the coming months, with the BSP's key policy rate reaching 5.25% by October. This will be the highest rate since April last year and match the rate set in June 2025.
The Monetary Board began its tightening cycle with a quarter-point hike in April and later delivered another 25-basis-point increase in June due to increasing inflationary pressures from the energy shocks triggered by the Middle East war. Monetary officials have left the door open for further measured hikes.
BSP Governor Eli M. Remolona, Jr. has said that they still have space for a third straight 25-basis-point rate hike as he sees the economy gaining some momentum by the second half of the year.
The central bank has reiterated its hawkish signals, noting that they could continue to pursue further monetary action to bring inflation back to their 3% target. Deutsche Bank now sees the headline print settling at 6% this year, slower than its previous 6.2% estimate.
The looming El Niño event and price risks from food inflation, as well as the peso's fragile standing versus the dollar, have also been flagged as concerns. If realized, the local agricultural sector will likely take a hit from extreme hot weather, which could push food prices up nationwide.
The ongoing war between the US, Israel, and Iran continues to weigh on the peso, averaging above the P61-per-dollar mark for two straight months. This could keep the peso and imported cost inflation under pressure.
The upcoming minimum wage hike could also add pressures to the country's inflation, growth, and employment. Metrobank Research Officer Marian Monette Florendo-Obias noted that the record-high hike could stoke inflation via second-round effects as businesses may opt to increase their prices to meet the new minimum wage.
Rising prices could also dampen demand and lead to a slightly weaker job market as businesses cut workers' hours or reduce hiring to offset increasing labor costs. However, all these spillover effects are expected to pose minimal threat to the economy as the wage hike is set to affect merely 2% of the country's labor force.
The Department of Labor has announced that it will implement a dual tranche P85 increase in the minimum wage in the National Capital Region (NCR). Starting July 25, the minimum wage in the NCR will increase by P60 to P755 for nonagricultural workers and to P718 for agricultural workers and employees of retail, service, and small manufacturing establishments.
