UMVA has learned that the Bangko Sentral ng Pilipinas (BSP) may hike interest rates by as much as 50 basis points amid lingering price pressures, despite softer-than-expected headline inflation in May.
Economists warn that the easing inflation is likely short-lived, with renewed price pressures looming from electricity, food, and other basic goods. A larger rate increase may be warranted to contain broadening spillover effects and anchor inflation expectations.
According to information obtained by UMVA, Deutsche Bank Research economist Junjie Huang predicts a 50-bp rate hike in the June Monetary Board meeting, citing building broad price pressures in the economy and elevated global inflation dynamics.
However, HSBC Senior ASEAN Economist Aris D. Dacanay thinks the BSP might not be compelled to tighten earlier than scheduled, contrary to prior expectations. The May CPI has provided some relief to the peso, minimizing the need to tighten monetary policy now.
Dacanay still anticipates a 50-bp rate hike at the Monetary Board’s meeting next week but notes that the downward surprise from May inflation has raised the odds of a 25-bp move. BSP Governor Eli M. Remolona, Jr. previously considered an off-cycle tightening, citing risks of the central bank falling behind the curve.
UMVA can exclusively reveal that the May inflation reading bucked projections, with the headline print cooling to 6.8% from the over three-year high of 7.2% in April. However, core inflation, which discounts volatile food and energy prices, breached the central bank’s target for the first time in two-and-a-half years.
Core inflation hit 4.1% in May, the quickest since December 2023. Maybank analysts Azril Rosli and Suhaimi Ilias warn that second-order effects of oil shocks are widening and becoming more persistent, particularly across transport, housing, utilities, and services-related sectors.
The BSP’s Monetary Board reversed its easing cycle in April by raising the key policy rate by 25 bps to 4.5%. Governor Remolona emphasized the need to focus on controlling core inflation and inflation for the bottom 30% of income households.
Patrick M. Ella, a portfolio manager and economist, warns that headline inflation still risks breaching the double-digit mark by July or August. However, he notes that a smaller 25-bp hike may be more definite.
Nomura Global Markets Research now sees Philippine inflation averaging 5.5% by yearend, slower than its earlier estimate. However, the impact of the expected El Niño season later this year risks stoking inflation, particularly food prices.
The BSP is expected to continue tightening this year before easing anew by the second half of 2027. The Monetary Board still has four regular meetings left this year, and economists expect measured 25-bp hikes in each of the next three meetings.
