But rate hike remains on the table – economists

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June 7, 2026 | 12:00am

Softer inflation gives BSP more policy room

MANILA, Philippines — The softer-than-expected inflation print in May may give the Bangko Sentral ng Pilipinas (BSP) room to take a more measured approach to tightening, although economists said another rate hike remains likely as underlying price pressures persist.

Headline inflation eased to 6.8 percent in May from 7.2 percent in April, below market expectations and the BSP’s forecast range of 7.1 to 7.9 percent for the month. Still, inflation stayed above the two to four percent target for the third straight month.

“The downside surprise eases pressure on BSP to hike aggressively, allowing the central bank to be circumspect in future tightening to protect whatever is left of growth momentum,” Metrobank chief economist Nicholas Mapa said.

The Philippine Statistics Authority reported that the slowdown in May was driven mainly by lower transport inflation following fuel price rollbacks. Petroleum products and rice prices reversed the previous month’s gains, although prices of these items remained elevated.

Despite the May slowdown, Core inflation, which excludes volatile food and energy items, picked up to 4.1 percent from 3.9 percent, breaching the BSP’s two to four percent tolerance band for the first time since December 2023.

The increase was driven by faster price gains in services, including restaurants, recreation and passenger transport, as well as furnishings, household equipment and maintenance.

“Nonetheless, the lower-than-expected outturn supports our view that off-cycle rate hikes are unnecessary, allowing the BSP to proceed with a gradual and shallow tightening path,” Chinabank chief economist Domini Velasquez said.

Chinabank now projects inflation to average 5.7 percent this year, with monthly inflation prints expected to stay below seven percent.

Velasquez expects the BSP’s tightening cycle to end after two more 25-basis-point hikes in June and August, as demand stays soft while inflation expectations remain anchored over 2027 to 2028.

“Looking ahead, there are looming risks that could upend the trend in food prices, with the biggest risk being the ‘very strong’ El Niño expected to develop between June and August and potentially persist into early 2027,” Velasquez said.

“Conditions may begin with heavy rains before gradually shifting to warmer and drier weather later in the year, which could disrupt agricultural production,” she said.

ING Bank said the softer headline print may offer near-term relief to the BSP, but warned that inflation risks remain tilted to the upside.

“In this environment, we view a 25-basis-point rate hike in June as highly likely in our base case,” Deepali Bhargava, ING regional head of research in Asia-Pacific, said.

Bhargava expects inflation to average 5.8 percent this year, still above the BSP’s target. He also sees a front-loaded but measured tightening cycle, with a larger 50-basis-point hike possible if geopolitical tensions fail to ease before the June 18 policy meeting.

“With tensions surrounding the US–Iran conflict showing little sign of near-term de-escalation, our base case is tilted toward a higher global oil price environment, with supply disruptions likely to ease only by the third quarter,” Bhargava added.

The BSP raised its policy rate by 25 basis points in April to 4.50 percent, effectively ending an easing cycle that delivered a cumulative 225 basis points in rate cuts from August 2024 to February 2026.

The central bank has signaled that it will do as many hikes as necessary to keep prices stable.