Rate decision casts growth vs inflation dilemma for BSP
By Derco Rosal
Published Jun 15, 2026 12:00 am
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Updated Jun 15, 2026 05:53 am
President Ferdinand R. Marcos Jr. discusses the country’s inflation rates and monetary policy with Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona. (PCO file photo taken in November 2025)
Stubborn inflation is forcing the Bangko Sentral ng Pilipinas (BSP) to seriously consider higher borrowing costs, a move that threatens to worsen the sharp economic slowdown already hitting the country.
Since the BSP delivered a quarter-point hike to 4.5 percent in April, calls for further tightening have grown to as much as 50 basis points (bp) in one go. Of the nine economists polled by the Manila Bulletin, six penciled in another quarter-point hike to 4.75 percent, while two others—British banking giants HSBC and Standard Chartered—called for a more hawkish policy adjustment.
British lender Barclays noted that the Philippines and Brazil are the only emerging markets (EMs) that have yet to contain food inflation pressures. “There are a few countries where pressures are to the upside, however, with [the] Philippines and Brazil the stand-outs,” it said.
While this should prompt local monetary authorities to aggressively raise interest rates, Barclays cautioned against weakening private consumption, largely due to the elevated cost of living.
Inflation peaked at a more-than-three-year high of 7.2 percent in April before easing to 6.8 percent in May. According to Barclays, this sign of moderating inflation is “likely to restrain the central bank from even more aggressive action, especially given the slump in Q1 gross domestic product (GDP) growth.”
Domestic GDP grew by just 2.8 percent in the first quarter of 2026, the slowest expansion in five years since the peak of the Covid-19 pandemic.
As such, Barclays anticipates a more measured 25-bp hike at the policy meeting on Thursday, after which the lender expects the BSP to reverse course and begin easing in 2027. Other institutions forecasting a 25-bp hike include UOB, ING, think tank Capital Economics, Chinabank Research, and DBS Bank Ltd.
“We think that the BSP has limited room to tighten monetary policy. This policy cycle will be focused on ensuring that inflation expectations remain anchored rather than crimping domestic demand further,” Chinabank said, echoing Barclays’ view.
Chinabank believes inflation may have already peaked in April, leading its research unit to expect succeeding consumer price index (CPI) prints to fall below 7 percent.
According to Chinabank, Philippine monetary authorities cannot follow the aggressive lead of regional peers like Indonesia, citing stark differences in GDP growth outturns. While Indonesia has the space for larger interest rate adjustments, Chinabank sees “limited scope for the BSP to pursue aggressive tightening.” Indonesia’s economy grew by 5.6 percent in the first quarter of the year—twice as fast as the Philippines' during the same period.
Meanwhile, Singapore-based ING warned that future economic developments are more likely to push prices higher.
Deepali Bhargava, ING’s regional head of research for Asia-Pacific (APAC), maintained her projection that headline inflation will average 5.8 percent this year. While lower than the BSP’s own assumption of 6.3 percent, this remains well above the 4 percent target ceiling. Bhargava said this persistent high-inflation environment renders a 25-bp interest rate hike “highly likely” on Thursday.
Conversely, the more hawkish camp stresses that the BSP must prioritize its mandate to stabilize consumer prices, arguing that inflation remains on an upward trajectory.
“Headline CPI in May surprised to the downside, but the fact of the matter remains the same: inflation will likely continue to accelerate,” said Aris Dacanay, HSBC senior economist for the Association of Southeast Asian Nations (ASEAN).
Dacanay warned that massive supply pressures are still on the horizon and have not yet fully filtered through to domestic commodity prices. “The caloric shock from higher fertilizer prices and the El Niño season have yet to make it to shore,” he said.
Apart from containing inflation, Dacanay pointed to the need to defend the Philippine peso against the United States (US) dollar. He noted that “an aggressive monetary policy stance will be appropriate to mitigate foreign exchange (forex) volatility, more so with the risk of the US Federal Reserve suddenly turning hawkish.”
Dacanay also maintained that the BSP is “not in the best position to address growth,” a stance the central bank has held since supply-driven inflation first surfaced in the domestic economy.
According to the economist, the fastest way to revive growth is to get fiscal policy back in gear. A recent flood control controversy prompted the government to constrain spending, particularly on infrastructure projects, consequently dragging the economy below target levels in the second half of 2025.