British banking giant HSBC is now leaning toward back-to-back jumbo interest rate hikes that could lift policy rates to six percent, as signs of de-escalation in Middle East tensions remain muted—potentially forcing the Bangko Sentral ng Pilipinas (BSP) to add another layer to its price-stabilization measures.

This comes on the back of a “huge surprise” in April inflation, which shot up to 7.2 percent. HSBC noted that the actual inflation figure “went beyond anyone’s expectations,” driven by a mix of record-high food and energy costs.

Rice prices, as the main contributor, reached ₱46.84 per kilogram—the highest since record-keeping began in 2013—while fuel for transport surged by a staggering more than three-fifths.

Japanese financial giant MUFG Bank Ltd. also noted the Philippines has fallen into a “vulnerable camp” due to its high dependence on imported energy and food.

MUFG senior currency analyst Michael Wan said the BSP may be forced to act aggressively, looking at up to 100 basis points (bps)—“and we will not be surprised if there is an off-cycle meeting to do so, coupled with perhaps some chance of a jumbo 50 bps rate hike moving forward,” Wan said.

HSBC’s assessment also showed that the current inflationary pressures may “necessitate a huge policy response to either bring inflation down or keep inflation expectations anchored.”

HSBC’s baseline for an “adverse” scenario now anticipates the BSP raising the policy rate to six percent by year-end, specifically through a 50 bps hike in June and August.

This aggressive tightening is viewed as a necessary defense for the local currency, said Aris Dacanay, HSBC senior economist for the Association of Southeast Asian Nations (ASEAN).

“A strong monetary response may be needed to support the peso and keep forex-induced inflation in check,” Dacanay said, especially as the currency faces downward pressure from geopolitical instability.

Despite the need for higher rates, economists warn that the BSP is increasingly “caught between a rock and a hard place.”

While inflation is soaring, domestic economic growth remains “well below the economy's potential.”

Wan said the economy’s already weak growth momentum is being further weighed down by fiscal tightening, with controversies surrounding flood control projects still slowing government spending.

On prices, HSBC has revised its outlook to reflect a longer period of elevated prices, now forecasting inflation to average 6.3 percent in 2026 and 4.5 percent in 2027.

“On the fiscal front, policymakers will likely look into a reduction in the tariff rates of rice and fast-tracking the implementation of targeted subsidies,” Dacanay said. “The government may also look into cutting the excise taxes on gasoline and diesel.”