Manila Bulletin
Business
Banking & Finance
Economists split over BSP's next big move after June hike
Business
Banking & Finance
Economists split over BSP's next big move after June hike
Economists split over BSP's next big move after June hike
By Derco Rosal
Published Jun 19, 2026 11:34 am
|
Updated Jun 19, 2026 01:29 pm
Persistent price pressures are expected to keep the Bangko Sentral ng Pilipinas (BSP) on alert, but foreign observers are now urging a more dovish stance, including a potential year-long pause, following the central bank's “restrained” rate hike to 4.75 percent.
British banking giant Barclays expects the BSP to end its tightening cycle for an extended period after Thursday's quarter-point hike. The lender interprets the move as a measured response to elevated inflation, which hit 6.8 percent and 7.2 percent over the past two months.
Brian Tan, head of non-China emerging market (EM) Asia economics research at Barclays, noted in a June 18 commentary that the dilemma between overheating inflation and crippled economic growth is creating a rift within the policy-setting Monetary Board (MB).
“We suspect that such an [inflation] profile amid weak gross domestic product (GDP) data will divide the MB, leading its more dovish members to favor restraint and hold the policy rate back from further hikes to support still-subpar economic growth,” Tan said.
Domestic economic growth stood at 2.8 percent in the first quarter of 2026, the weakest output in five years since the peak of the Covid-19 pandemic.
Based on the magnitude and timing of the latest interest rate hike, Tan believes the BSP’s fiercely hawkish tone is starting to fade.
“We view today’s decision to hike by just 25 basis points (bps) and not 50 bps—and the fact that it was delivered at a scheduled meeting as opposed to an off-cycle decision, as BSP Governor Eli Remolona Jr. had hinted was under consideration—as evidence of such restraint,” Tan noted.
Anticipating a shift to a more dovish pace, Tan projects that the BSP will “go on a prolonged pause,” provided the local economy faces no further external shocks. However, he acknowledged that the central bank could still pursue one final rate hike at its August policy meeting.
Looking further ahead, Tan believes the BSP will pivot back to an easing cycle a year from now, cutting the benchmark rate by a cumulative 75 bps across three consecutive policy meetings in June, August, and October 2027. This trajectory would bring the borrowing cost down to four percent—lower than its level before the US-Iran war forced vulnerable economies to shield themselves from surging prices.
Joining Barclays in this dovish outlook is think tank Pantheon Macroeconomics. Pantheon argues that June’s hike will be the BSP’s last tightening action, under the view that inflation has already peaked.
“Our base case is that today's rate increase will be the BSP's last, with the worst part of the inflation shock in the rear-view mirror and GDP growth still extremely subdued,” said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics.
Pantheon added that cooling inflation figures and the recent US-Iran peace deal have rendered a jumbo rate hike unnecessary. “This was never on the table from our point of view, considering the softer-than-expected May inflation,” Chanco said.
While Barclays focused on the magnitude and timing of the hike, Pantheon highlighted a subtle shift in the central bank’s forward guidance. Following the latest policy meeting, the BSP stated it is “prepared to take further monetary action as needed” to return inflation to its target band. This tone is noticeably less intense than April's guidance, which declared the BSP was “ready to take all necessary monetary actions.”
Like Tan, Chanco acknowledged lingering upside risks to policy adjustments, citing unpredictable factors such as El Niño and potential hawkish shifts from the US Federal Reserve.
Meanwhile, a separate camp of banks and think tanks argues that the BSP's tightening cycle is far from over.
Deepali Bhargava of ING views the current climate as a “watch-and-act” mode where the central bank is “not losing sleep, but neither can it confidently say the worst is over.” According to Bhargava, the recent peace deal in the Middle East is “not enough to halt tightening,” leading the Dutch financial giant to maintain its forecast of another 50-bps rate hike in 2026 to ensure inflation expectations remain anchored.
Both Oxford Economics and Capital Economics have also penciled in another quarter-point hike for the August policy meeting.
Jason Tuvey, deputy chief emerging markets economist at Capital Economics, noted that the central bank maintained its hawkish stance by raising interest rates even as domestic economic growth struggled. Tuvey expects the policy rate to reach 5.0% by August, though he warned that beyond that point, “concerns about the weak economy may prompt BSP to move to the sidelines.”
Similarly, Oxford Economics’ Jun Hao Ng stressed that “today’s hike represents a continued response to mounting price pressures,” projecting that headline inflation will likely stay above the target range until 2028.
GlobalSource Partners Inc. centered its analysis on the central bank’s primary mandate to maintain price stability, noting:
“The central question is no longer whether rates should rise, but by how much.”
This perspective emphasizes that central bank credibility remains a higher priority than immediate growth concerns.
Aris Dacanay, HSBC senior economist for the Association of Southeast Asian Nations (ASEAN), echoed this sentiment, adding that the BSP likely “opted to tighten the monetary reins more modestly because it had the opportunity to do so.”
Dacanay, who was among the most hawkish economists heading into the review, had initially priced in a 50-bps increase for June.
“Although monetary authorities are managing the dual risks inherent in stagflation, we thought inflation concerns would outweigh concerns about low growth," Dacanay said. "Price stability is the BSP's primary mandate, after all.”