Despite easing inflation in May, pressure is mounting on the Bangko Sentral ng Pilipinas (BSP) to raise interest rates by 50 basis points (bps) at its June 18 policy meeting, as analysts see the moderation in price growth as short-lived and argue that a smaller hike could come at the expense of the peso’s stability.

Foreign financial giants HSBC and Deutsche Bank AG are maintaining their hawkish expectations for local monetary authorities, citing elevated global inflation risks and viewing the May inflation print as a temporary dip.

In a June 5 commentary, Deutsche Bank economist Junjie Huang noted that May inflation of 6.8 percent remained well above the BSP’s target range of two to four percent, even as the Frankfurt-based lender had expected it to surge to 8.2 percent.

“Our view of the BSP hiking by 50 bps in the June Monetary Board (MB) meeting is unchanged,” Huang said, asserting his belief that the lower inflation print may only be a “temporary” slowdown.

For this assumption, Huang pointed to the broad inflationary pressures that continue to build up in the economy, adding that Deutsche Bank’s “outlook for global inflation dynamics is still elevated.”

British financial giant HSBC similarly holds the same hawkish near-term outlook on BSP monetary policy but has adopted a cautious tone.

Aris Dacanay, HSBC senior economist for the Association of Southeast Asian Nations (ASEAN), characterized the May consumer price index (CPI) as both a surprise and a relief, pointing particularly to the retreat in food and energy costs on a month-on-month basis.

However, Dacanay warned that this breather does not necessarily signal a shift toward a more dovish policy.

“We think this outcome removes the urgency of doing an off-cycle rate hike,” he said, adding that this offers immediate support to the Philippine peso. However, the underlying data remain a major concern for the BSP.

Dacanay maintained that a jumbo hike remains the most prudent course moving forward, stressing core inflation’s recent breach of the target ceiling and implying that “spillover effects from the initial surge in inflation still need to be managed.”

With the trade deficit widening to a three-year high in April, HSBC argued that the BSP must remain aggressive to protect the peso.

“Though the downside surprise in inflation is a relief to the peso, hiking by 25 bps and not 50 bps risks bringing back the pressure in managing foreign exchange (forex)-induced inflation, especially with the trade deficit in April widening to a three-year high,” Dacanay said.

Meanwhile, Nomura Holdings Inc., a Japanese investment and brokerage giant, holds a less hawkish but vigilant posture on monetary policy due to its assumption that the worst of the headline inflation surge may have already passed.

“Our new forecast implies headline inflation has already peaked after easing in May, but core inflation has not,” Nomura Asia economists Euben Paracuelles and Nabila Amani said in a June 5 commentary.

As such, Paracuelles and Amani reduced their headline inflation forecast for 2026 to an average of 5.5 percent from 6.1 percent. If realized, this would still exceed the four-percent ceiling.

“By contrast, we think core inflation will continue to increase gradually before peaking by the fourth quarter of 2026, reflecting lagged pass-through effects from still-elevated energy prices,” Nomura said, keeping its core inflation forecast for 2026 at 4.6 percent.

Unlike the more hawkish outlooks of Deutsche Bank and HSBC, Nomura expects the BSP to take a more gradual approach, pricing in “only measured 25-bp hikes in each of the next three meetings starting on June 18.”

Despite this softer policy assumption for the June meeting, Nomura warned that the central bank cannot afford to let its guard down.

“We think the BSP will view any further increase in core inflation as a sign of second-round effects that require vigilance,” Nomura said, citing risks from a resurgence in oil prices or the onset of the El Niño phenomenon.

Nomura said the BSP must weigh the relief from cooling headline inflation against elevated core inflation. Core inflation, which excludes volatile food and energy items, accelerated for a fifth straight month and breached the four-percent cap for the first time since December 2023.

Overall, Nomura anticipates this policy hiking cycle reaching 5.25 percent from the current 4.5 percent, as inflation is seen returning to the target band by the second quarter of 2027.

“We still expect rate cuts by the BSP in the second half of 2027, reversing course and cutting by 75 bps, taking the policy rate back to 4.5 percent by year-end,” it said.