BSP expected to deliver further rate hikes into early 2027 as inflation stays hot

Economists project the Bangko Sentral ng Pilipinas (BSP) will raise its benchmark policy rate by another 50 to 75 basis points through early 2027, following a surprise 50-bp hike in October that brought the rate to 5.5%. Headline inflation hit 7.2% in September, its fastest pace in three-and-a-half

Benchmark interest rates in the Philippines will likely rise further until early 2027 as red-hot inflation warrants additional tightening by the Bangko Sentral ng Pilipinas (BSP), according to economists.

In a report, Nomura said the BSP may deliver 75 basis points (bps) more in hikes to push the policy rate to 6.25% by February. The Japanese financial giant expects an outsized 50-bp hike at the next Monetary Board meeting in December, followed by a 25-bp increase in the first quarter of 2027. “We pencil in another outsized 50-bp hike at the next Monetary Board meeting in December, taking into account our forecasts of headline CPI inflation of around 7% in the next two months,” Nomura research analysts Euben Paracuelles and Nabila Amani said. ANZ Research, meanwhile, sees two more 25-bp rate increases, extending the BSP’s tightening cycle to six straight meetings and taking the terminal rate to 6% in the first quarter of 2027.

At its 22 October 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, and marked the BSP’s fourth consecutive meeting in which it tightened monetary policy. Total increases since April amount to 125 bps. BSP Governor Eli M. Remolona, Jr. said the central bank acted more aggressively than usual as accelerating inflation amid persistent and emerging pressures had pushed it 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, up from 6.1% in August. 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, which excludes volatile food and fuel prices, accelerated to a nearly three-year high of 4.7%. The BSP forecasts inflation to end at 6.1% this year and 6% next year before cooling to 3.3% in 2028.

Chinabank Research said 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 from El Niño, transport fare adjustments and food prices. If the BSP’s latest inflation outlook holds, monetary easing could be pushed back to late 2027 or early 2028. 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. The RRR for universal and commercial banks was last cut by 200 bps to 5% in February 2025.

Citigroup is pricing in one 25-bp hike each at the central bank’s next two meetings in December and February, projecting 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, but also through the FX pass-through channel as a result of terms of trade deterioration,” Citi said. Oxford Economics noted that the peso’s sustained weakness calls for additional rate hikes even as the economy remains sluggish. The peso hit fresh record lows for five consecutive trading days last week, slumping to a new historic trough of P63.615 against the dollar on Friday. Year to date, the peso has declined by P4.825 or 7.58% from its P58.79 finish on 29 December 2025. Mr. Remolona said the central bank does not tighten monetary policy to support the peso, reiterating that its FX market intervention remains limited to preventing sharp inflationary swings.