The Bangko Sentral ng Pilipinas (BSP) is facing mounting pressure to deliver a more aggressive interest rate hike or a rare off-cycle move after inflation surged to a three-year high in April.

British banking giant Barclays is now pricing in three consecutive 25-basis-point increases, which would lift the benchmark borrowing cost to 5.25 percent by the end of 2026.

Headline inflation accelerated to 7.2 percent in April from 4.1 percent in March, the fastest pace since March 2023. The reading significantly overshot the BSP’s upper-end forecast of 6.4 percent, marking the second instance where the central bank has underestimated the scale of global price pass-throughs.

In response to the data, Barclays raised its full-year inflation forecast to 6.3 percent from a previous estimate of 4.9 percent. The bank also adjusted its 2027 outlook to 3.8 percent from 3.2 percent.

Food inflation, which surged to six percent from 2.9 percent in March, was the main accelerator of price growth during the second month of the global oil disruption stemming from the Middle East conflict.

According to the PSA, rice led the surge, contributing one percentage point (ppt) to overall inflation as its price growth hit a nearly two-year high of 13.7 percent.

Philippine Statistics Authority (PSA) data showed that the inflation rate for the bottom 30 percent income households jumped to 8.5 percent in April, also a 37-month high since the 8.8 percent posted in March 2023.

Since this is higher than the headline rate of 7.2 percent, it means the poorest Filipinos suffered more from price surges, as their consumption mostly consists of food and transport expenses.

As raising key interest rates could help temper surging prices, Brian Tan, Barclays head of non-China emerging market (EM) Asia Economics Research, expects local monetary authorities to tighten monetary policy from the freshly hiked rate of 4.5 percent.

Even as the latest inflation rate warrants a larger hike, Tan still penciled in a quarter-point hike each in May, June, and August—bringing the benchmark rate to 5.25 percent this year.

“While the magnitude of the jump in the April consumer price index (CPI) print raises the risk of a larger 50 bp rate hike in upcoming policy meetings, our base case is for the BSP to stick with 25 bp moves,” Tan said.

Meanwhile, Dutch financial giant ING believes a quarter-point hike in June appears to be a certain move, with jumbo and faster hikes now on the table. “We continue to expect front-loaded and measured rate hikes by the BSP,” it said.

“Inflation pressures have become increasingly broad-based, with food and fuel shocks feeding into core inflation and services, raising the risk of more persistent second-round effects,” said Deepali Bhargava, ING regional head of research for Asia-Pacific (APAC).

Bhargava further said that the BSP’s preference for a measured policy adjustment and recent pressures for further peso slump cannot rule out an off-cycle hike.

Like Tan, Bhargava’s base case is a cumulative 75 bps rate hike, while under a scenario where military hostilities protract, “a deeper and more aggressive hiking cycle would likely follow,” she said.

Similarly, China Banking Corporation (Chinabank) has forecast the central bank to continue its policy tightening approach, citing its expectation that full-year consumer price growth would settle at at least six percent.

“We now expect average full-year inflation to reach at least six percent, with price growth likely to remain above the BSP’s two–four percent target even in 2027,” Chinabank said, adding that this would constrain the central bank’s ability to raise rates “aggressively,” especially when household spending is seen bearing the brunt of elevated costs.

Notably, Tan remains expectant of policy easing but sees it being deferred to 2027.

“We still expect the BSP to reverse course and cut rates from next year, but now believe this will occur later than we earlier expected: our base case is now for 25 bp rate cuts in June, August, October, and December 2027,” Tan said.