British banking giant Barclays now expects the Bangko Sentral ng Pilipinas (BSP) to deliver just one more interest rate hike this month before eventually returning to monetary policy easing, after inflation in May slowed more than anticipated.

In a report obtained by Manila Bulletin, Singapore-based Barclays Bank economist Brian Tan said the lower-than-expected inflation reading has reduced the urgency for further aggressive monetary tightening even as price pressures remain elevated.

The Philippine Statistics Authority (PSA) reported on Friday, June 5 that headline inflation eased to 6.8 percent last month from the more-than-three-year high of 7.2 percent in April. The May figure was below both the 7.8-percent Bloomberg consensus forecast and Barclays’ own 7.2-percent estimate.

“With consumer price index (CPI) inflation stabilizing earlier than we expected, we doubt the BSP’s Monetary Board (MB) will be as keen to hike its policy rate by as much as we earlier expected, especially with gross domestic product (GDP) growth so weak,” Tan said.

As a result, Barclays has scaled back its expectations for monetary tightening and now forecasts only a single 25-basis-point (bp) increase at the MB’s June 18 policy meeting, which would bring the overnight borrowing rate to 4.75 percent from the current 4.5 percent.

The revised outlook marks a significant shift from the bank’s earlier expectation that the BSP would need to raise rates more aggressively in response to surging inflation fueled by higher energy costs stemming from the prolonged war in the Middle East.

According to Tan, falling rice prices and easing energy costs helped temper inflation last May. He noted that lower global crude oil prices reduced the contribution of non-core energy items such as electricity, diesel, gasoline, and liquefied hydrocarbons to overall inflation.

While headline inflation moderated, core inflation—which strips out volatile food and energy items—edged up to 4.1 percent in May from 3.9 percent last April. Still, Barclays said there remains limited evidence that broader second-round inflation effects are becoming entrenched in the economy.

Barclays also lowered its full-year inflation forecast for 2026 to 5.9 percent from 6.3 percent previously, while maintaining its 2027 forecast at 3.8 percent. The bank expects inflation to remain elevated over the coming months before gradually returning to the BSP’s two- to four-percent target range by 2027.

Despite expectations of one final rate increase, Barclays believes the BSP will eventually shift its focus back toward supporting economic growth, which has remained subdued.

The Philippine economy expanded by just 2.8 percent in the first quarter of 2026, slowing from three percent in the previous quarter and remaining far below the government’s GDP growth ambitions of five to six percent for the year. Barclays said weak economic activity could lead to growing differences within the policy-setting MB over how aggressively rates should be raised.

“We still expect the BSP to reverse course and cut rates from next year,” Tan said. Barclays now expects the central bank to begin reducing borrowing costs in 2027 and ultimately bring its policy rate down to four percent as inflation returns to target and economic growth remains below potential.