More BSP rate hikes expected

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May 6, 2026 | 12:00am

As April inflation sizzles

MANILA, Philippines — The Bangko Sentral ng Pilipinas signaled it is prepared to take further action to bring inflation back to target after price growth surged to a three-year high of 7.2 percent in April, well above the BSP’s forecast range for the month.

In a statement, the BSP said it would remain vigilant for possible spillover effects after inflation jumped from 4.1 percent in March, reflecting the impact of higher international fuel prices on domestic food and energy costs. The April inflation print exceeded the BSP’s month-ahead forecast range of 5.6 to 6.4 percent.

Core inflation, which strips out volatile food and energy items, also rose to 3.9 percent in April from 3.2 percent in March, suggesting that price pressures are starting to broaden beyond fuel and food.

“The BSP is committed to fulfilling its primary mandate of slow inflation and will take necessary actions to ensure inflation returns to its three-percent target within a reasonable time,” the central bank said. “It will remain vigilant for spillover effects, data-driven and ready to act as needed.”

The BSP raised its policy rate by 25 basis points last month to 4.50 percent, effectively ending the easing cycle that saw the central bank slash borrowing costs by a total of 225 basis points from August 2024 to February this year.

Economists said inflation may climb further and even test double-digit levels later this year if oil prices stay elevated, raising the odds of off-cycle and larger rate hikes from the BSP.

BPI lead economist Emilio Neri Jr. said the April inflation print, which exceeded both market and BSP forecasts, “has significantly raised the likelihood of an off-cycle rate hike,” especially as the next Monetary Board meeting is still weeks away.

“The BSP may deliver rate hikes larger than the typical 25 basis points, either in a regular or off-cycle meeting, with a more forceful move potentially required to rein in inflation expectations,” Neri said.

Neri said headline inflation may still be far from its peak, depending largely on the duration of the Middle East conflict and the trajectory of global oil prices.

“Current projections suggest that inflation is still far from its peak and it could reach the double-digit level in the fourth quarter if oil prices stay elevated,” Neri said.

According to Neri, the possible onset of El Niño in the second half could push rice prices even higher, with possible spillover effects on inflation in the first half of 2027 if weather conditions turn severe.

Chinabank chief economist Domini Velasquez also said the April inflation shock pushed the country’s inflation trajectory “materially higher” this year.

“Absent a substantial decline in oil prices, inflation is likely to remain above seven percent for much of the year,” Velasquez said.

Chinabank now expects average inflation to reach at least six percent this year, with price growth likely to remain above the BSP’s two to four percent target even in 2027.

“Hence, we expect the BSP to raise rates further,” Velasquez said.

However, she said elevated inflation would continue to weigh on consumption and growth, limiting the BSP’s ability to tighten aggressively.

This, Velasquez said, places “greater responsibility on the government to curb additional inflationary pressures.”

Nomura economists Euben Paracuelles and Nabila Amani likewise raised their inflation forecasts after the upside surprise in April.

Nomura now expects Philippine inflation to average 6.1 percent this year, up from its previous forecast of 4.9 percent and well above the BSP’s target. It also raised its core inflation forecast to 4.6 percent from 3.8 percent.

The research firm also expects the BSP to deliver an additional 75 basis points in rate hikes this year, bringing the policy rate to 5.25 percent. This would consist of 25-basis-point hikes in June, August and October before a pause.

Still, Paracuelles and Amani expect the BSP to take a measured approach, given growth headwinds and the still negative output gap.

UnionBank chief economist Ruben Carlo Asuncion said the BSP is expected to maintain a restrictive policy stance for an extended period as it keeps watch over inflation expectations.

“An off?cycle meeting, however, remains unlikely unless subsequent data show persistently upside surprises or clear signs of second?round effects,” Asuncion said.

For BPI’s Neri, a stronger policy response may be warranted even if higher borrowing costs could weigh on economic activity.

“While tighter monetary policy could weigh on growth by raising the cost of financing capital expenditures, the economic damage from persistently elevated inflation may be more severe, justifying a more aggressive policy response,” Neri said.

He said preserving the country’s foreign reserves is also another reason for tightening, as rising inflation could erode real returns, weaken the appeal of local assets and trigger portfolio outflows that may put further pressure on the peso.