British banking giant Barclays said dovish members of the Monetary Board (MB) will likely support a less aggressive policy stance amid signs of cooling inflation, adding that monetary authorities may reverse their tightening cycle by 2027 to buoy a slowing economy.
“With the May inflation print stabilising at 6.8 percent year-on-year following the surge to 7.2 percent in April, we suspect the more dovish members of the MB will argue in favor of restraint and hold the policy rate back from being hiked by a larger 50 basis points (bps),” Barclays wrote in a June 15 commentary.
This less hawkish outlook also banks on de-escalating tensions between the United States (US) and Iran, following nearly four months of military hostilities that choked the critical Strait of Hormuz.
“It is the central banks in Indonesia and the Philippines that have been hiking rates not because of economic growth but because of foreign exchange (forex) and inflation, respectively—and are more likely to look for opportunities to pivot if there is a more significant de-escalation in the Middle East conflict,” Barclays noted.
Barclays analysts expect the Bangko Sentral ng Pilipinas (BSP) to raise key borrowing costs by 25 bps to 4.75 percent from the current 4.5 percent during its policy meeting on Thursday, a move meant to further calm lingering price pressures.
Beyond this measured hike, the British lender anticipates that the BSP will conclude its inflation-targeting cycle and transition to monetary easing in 2027 to support the domestic economy, which has been in a slump since late 2025.
Barclays noted that while output gaps throughout emerging Asia improved in the first quarter, the Philippines and Malaysia were the exceptions, adding that “it is really only in the Philippines where we believe the growth malaise is real but unsurprising.” Domestic gross domestic product (GDP) growth hit a five-year low of 2.8 percent in the first quarter.
Think tank Moody’s Analytics also predicted that the BSP will tighten monetary policy on Thursday to pull inflation back into its two-to-four percent target band. The BSP recently raised its official headline inflation forecast to an average of 6.3 percent this year, far exceeding the target ceiling.
Singapore-based UOB has likewise pencilled in a quarter-point hike on Thursday, citing the broader impact of imported inflation. Aside from May's above-target headline numbers, UOB economist Jasrine Loke noted that core inflation has breached the target threshold for the first time since December 2023.
“This points to increasingly entrenched underlying price pressures and mounting second-round effects, thereby reinforcing the case for further monetary tightening,” Loke said.
Japanese financial giant MUFG Bank Ltd. took a similarly hawkish stance. Apart from inflation, the lender cited the need to anchor the local currency against the greenback.
“In the Philippines, the policy bias is also toward further tightening, as the BSP seeks to counter inflation pressures and support the peso,” MUFG said, noting that while inflation has eased, it remains stubbornly above target.