Local monetary authorities face the growing challenge to stabilize surging consumer prices as the initial pass-through of global oil inflation threatens to push the headline rate into double digits by the fourth quarter of the year.

The mounting risk that inflation expectations could become de-anchored may necessitate more aggressive intervention from the central bank, according to Bank of the Philippine Islands (BPI).

To manage inflation, the BSP reiterated its commitment to fulfill its mandate, assuring that it “will take necessary actions to ensure inflation returns to its three-percent target within a reasonable time.”

Further, the BSP vowed to keep a closer watch over the spillover effects of the external supply disruption and stand “ready to act as needed.”

“Inflation is expected to climb further, possibly into double digits in the fourth quarter, raising the likelihood of off-cycle and larger BSP rate hikes to anchor inflation expectations and support the peso,” BPI lead economist Emilio S. Neri wrote in a May 5 commentary.

Neri’s insight took off from the April inflation print, which accelerated to 7.2 percent from 4.2 percent in March, marking the fastest price growth in more than three years since March 2023.

Neri noted that the full impact of the Middle East conflict has not yet been reflected in the April print, despite the all-time high month-on-month price movements. This means that prices jumped the fastest last month compared to March levels amid the global oil crisis, quickly translating into higher costs for consumers.

For the economist, the latest inflation print has significantly increased the odds of an “off-cycle rate hike, especially with the next BSP meeting still weeks away,” scheduled on June 18.

“Should the central bank opt to wait, the gap between inflation and the policy rate could widen further, resulting in negative real interest rates that may exert pressure on the peso,” Neri cautioned.

While the trajectory of inflation remains highly uncertain and largely dependent on how the war unfolds, Neri warned that current forecasts 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.”

Risks from the domestic environment stem from the likelihood of El Niño in the second half of 2026, according to Neri, threatening to push prices even further.

Citing the need to rein in inflation expectations, Neri believes the central bank may deliver larger hikes rather than the typical baby steps of 25 basis points (bps). He sees this hawkish move taking place during a regular or off-cycle policy meeting.

Neri affirms the move to tighten further, citing the greater cost of a persistent surge in prices.

“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,” he said.

Nomura Holdings Inc., a Japanese investment and brokerage giant, also pencilled in three additional rate hikes after the first hike to 4.5 percent, particularly in June, August, and October—after which a pause is expected.

“Given the near-term growth outlook and still negative output gap, we believe BSP will stick to a measured approach and hike in 25-bp increments,” Nomura economists Euben Paracuelles and Nabila Amani said.

Nomura, meanwhile, expects the hiking cycle to be relatively fleeting. “We see a relatively short hiking cycle and continue to expect BSP to reverse some of the hikes we envisage by late next year,” it said.

After the tightening, the BSP could revert to an easing cycle in the second half of 2027, delivering a cumulative 75-bps reduction. Such a move would bring the policy rate back to the current 4.5 percent.