Even as the Philippines is seen posting its weakest post-global financial crisis (GFC) growth, think tank Oxford Economics still stands firm on its assumption that local monetary authorities will emerge among the “active hawks” on monetary policy, with jumbo rate hikes looming.

Louise Loo, Asia economics head at Oxford Economics, wrote in a May 14 commentary that she expects the Bangko Sentral ng Pilipinas (BSP) to deliver a cumulative 75-basis-point (bp) policy rate hike following the quarter-point hike to 4.5 percent last month. If realized, the benchmark rate could settle at 5.25 percent.

Loo’s hawkish outlook hinged on the fact that despite the inflation-targeting interest rate hike, inflation still shot up to a three-year high of 7.2 percent in April. The peso also remained under pressure despite tighter policy supposedly buoying the local currency.

The think tank said economic resilience varies among Asia-Pacific (APAC) economies. While north Asian economies benefit from an artificial intelligence (AI)-driven export boom, the Philippines is facing a “prolonged period of subdued domestic demand,” Loo noted.

Oxford Economics significantly lowered its 2026 real gross domestic product (GDP) growth projection for the Philippines to 3.5 percent from 5.5 percent previously. British banking giant HSBC also holds a more somber growth outlook, revising downward its 2026 and 2027 forecasts to 3.4 percent and 4.6 percent from 4.6 percent and 5.3 percent, respectively.

Such expansion rates, if realized, would fall short of the government’s minimum target of five percent for this year and 5.5 percent next year.

Loo noted that Oxford Economics expects “a few [APAC economies]—including the Philippines—to post their weakest post-GFC growth outside the pandemic.” Growth during the GFC in 2009 plunged to just 1.4 percent.

According to Oxford Economics, the need for further tightening stems from a policy gap that has widened as inflation outpaced interest rate adjustments. Although the BSP took an early lead in regional tightening, the think tank observed that inflation has still moved “much faster than the policy rate, leaving the real-rate offset incomplete.”

Oxford Economics warned that official government inflation targets remain too “sanguine” following the three-year-high inflation rate last April. Loo expects price movements to average around 6.5 percent this year, higher than the BSP’s revised assumption of 6.3 percent.

Aris Dacanay, HSBC Association of Southeast Asian Nations (ASEAN) senior economist, now expects a tad higher average inflation rate at 6.6 percent and 4.4 percent this year and next, up from his previous forecasts of four percent and 3.2 percent, respectively.

If achieved, these projections would mark the highest inflation levels in 18 years since the 8.2 percent recorded at the height of the GFC in 2008.

“Stagflation in the Philippines has taken shape,” Dacanay stressed, citing the combination of anemic growth in the first quarter of the year, surging consumer prices, and the rising unemployment rate.

Dacanay also cautioned that the economic environment “should get tougher moving forward.”

“Apart from the Hormuz chokepoint affecting the supply of oil, it has also affected the supply of fertilizer. This should then take a toll on agricultural yields in the second half of 2026, exacerbating the effects of the incoming El Niño season and keeping food prices high,” he said, explaining the broader spillover effect on core inflation and inflation expectations.

Like Loo, Dacanay holds a hawkish position on monetary policy, expecting double Oxford Economics’ hike projection.

“We expect the BSP to tug the monetary reins strongly and raise policy rates by 150 bps to six percent by year-end,” Dacanay said, pricing in a jumbo hike in June or two consecutive hikes, with one being an off-cycle adjustment.

Apart from domestic consumption, Loo said the volatility has reached the foreign exchange (forex) and credit markets. The peso has experienced the sharpest depreciation against the United States (US) dollar among 13 APAC economies since late February, the think tank reported.

Oxford Economics said “the peso has weakened despite the BSP hike,” suggesting that traditional interest rate tools are struggling to stabilize the currency.

Meanwhile, the think tank said the economy maintains a unique stabilizer in the form of overseas Filipino worker (OFW) income. “Remittances should also provide some cushioning,” Loo said, adding that flows from the Middle East “have historically been more stable than portfolio or tourism flows during external shocks.”