Despite a more somber outlook for Philippine economic growth this year, Singapore-based Oversea-Chinese Banking Corp. Ltd. (OCBC) now expects local monetary authorities to deliver a 25-basis-point (bp) rate hike in 2026 as consumer prices continue to rise persistently.

This assumption would mark a shift in the Bangko Sentral ng Pilipinas’ (BSP) stance, which had previously been in an easing cycle to support a weakening economy.

OCBC economists wrote in an April 13 report that the BSP “will be confronted with a higher inflation outlook which threatens to breach its two- to four-percent inflation target ceiling.”

What would force a hawkish tilt is a sharp acceleration in price pressures. Headline inflation in the Philippines surged to 4.1 percent in March, a steep increase from the 2.4 percent recorded in February.

Notably, March inflation marked the fastest pace of price growth in nearly two years.

This spike pushed inflation above the government’s preferred upper limit of four percent. Core inflation, which strips out volatile items, also showed signs of heating up, rising to 3.2 percent in March from 2.9 percent in February.

Transport costs saw the sharpest swing, surging 9.9 percent in March compared with deflation in the previous month. This prompted the Singaporean lender to maintain its inflation expectations for the year.

“We maintain our outlook that inflation will continue to pick up to 3.9 percent year-on-year in 2026 compared to 1.7 percent in 2025,” OCBC said.

“As such, we have revised our base case to include a 25-bp rate hike in 2026, bringing the policy rate to 4.5 percent,” OCBC further said.

To date, the key policy rate has been held at 4.25 percent. This current level reflects earlier easing measures aimed at stimulating an anemic economy that saw gross domestic product (GDP) expand by just 4.4 percent in 2025.

OCBC cited the World Bank’s significant downward revision of its 2026 growth forecast for the Philippines to 3.7 percent, from the previous 5.4-percent estimate. This revision reflects regional deceleration due to energy price shocks caused by the Middle East conflict, compounded by elevated trade barriers and global policy uncertainty.

Meanwhile, a recovery is expected in the year ahead, as the Washington-based multilateral lender forecasts a rebound to 5.6 percent as external pressures stabilize. If realized, this would still fall short of the government’s minimum growth target of six percent.

Across the region, growth is expected to recover to five percent in 2027 as geopolitical tensions and uncertainty gradually ease, though energy-importing economies—including the Philippines—remain vulnerable to prolonged shocks that could weigh on household incomes.