Efforts to tame surging consumer prices may come at a steep cost to the Philippine economy, placing the economic team and monetary authorities in the difficult position of containing inflation while grappling with mounting growth pressures.

British banking giant Barclays has turned more bearish on both inflation and gross domestic product (GDP) expansion this year, citing the Philippines’ status as a net importer, which makes it among the “most vulnerable economies in the region to the oil price shock.”

In a commentary published last week, Barclays raised its inflation forecast to 6.3 percent from 4.9 percent previously. This projection matched that of the Bangko Sentral ng Pilipinas (BSP), which, if achieved, would mark an 18-year high since the 8.2 percent recorded at the height of the global financial crisis (GFC) in 2008.

Barclays economists also raised their 2027 inflation forecast to 3.8 percent from 3.2 percent previously. This would place inflation back within the BSP’s two- to four-percent target range.

Citing skyrocketing consumer prices, Barclays is anticipating aggressive monetary policy tightening, lifting key borrowing costs to 5.25 percent by end-2026. This is expected to serve as a brake on potential demand-driven inflation.

“With our consumer price index (CPI) inflation forecasts ratcheting visibly higher, we expect three more 25-basis-point (bp) rate hikes by the BSP: in May (off-cycle), June and August (versus just June previously),” Barclays said.

“This could help peso sentiment incrementally, from a relative rate differentials perspective,” Barclays wrote in a separate commentary published over the weekend. However, it explained that gains in the peso would remain limited given the worsening condition of the Philippine economy.

Businesses that import goods will quickly buy United States (US) dollars whenever they become cheaper, preventing the peso from posting significant gains. This sustained demand for dollars is being driven by costly oil imports and deteriorating external fundamentals.

Barclays noted that the peso remains among Asia’s weakest currencies, as prolonged periods of elevated oil prices have left the Philippines highly vulnerable to external shocks. This has led investors to bet on the peso’s continued depreciation.

For Barclays, the peso may regain some footing at up to ₱59.5 against the US dollar if global oil prices decline sharply. Such a rebound would also require the greenback to weaken against other major global currencies.

While tighter monetary policy could support the peso and temper consumer prices, it also risks further weakening economic growth, which has already been slowing since the unearthing of large-scale flood-control corruption.

According to Barclays, the five-year-low first-quarter GDP growth of 2.8 percent and the three-year-high April inflation rate of 7.2 percent have heightened the risk that the Philippines could slip into a period of stagflation.

Barclays lowered its already subdued 2026 GDP growth forecast to a flat three percent from 3.6 percent previously.

Excluding the contraction during the peak of Covid-19 pandemic lockdowns, Barclays’ downgraded projection would mark the weakest growth in 18 years since the 1.4-percent expansion recorded in 2009 during the GFC.

It also cut its 2027 growth forecast to five percent from 5.2 percent previously, suggesting that economic expansion would once again fall short of the government’s minimum six-percent target.

It said stagflationary pressures would “likely lower the bar for a more aggressive BSP in delivering required tightening to anchor inflation expectations while the government signaled to accelerate fiscal spending to arrest the growth slowdown.”

As such, the BSP could eventually shift back to a dovish stance after benchmark rates peak at 5.25 percent.

“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,” Barclays said.