Frankfurt-based Deutsche Bank expects the Bangko Sentral ng Pilipinas (BSP) to deliver another interest rate hike at its upcoming Aug. 27 policy meeting, despite slowing headline inflation and underperforming economic growth.

In a commentary, Deutsche Bank projected a quarter-point increase this month, raising the central bank’s key benchmark rate to five percent from the current 4.75 percent.

The bank cited the need “to further dampen the impact of broad-based price pressures on consumers and stabilize their real income, especially as the implementation of a ₱85 minimum wage hike appears to be stalled for now amid legal proceedings.”

Looking beyond August, Deutsche Bank sees another rate hike on the table, which would bring the peak policy rate to 5.25 percent.

However, the German lender described this terminal rate assumption as fluid “given the sustained decline in headline inflation and wider negative output gap, even as we retain our prevailing view for now as risks from El Niño loom.”

Local gross domestic product (GDP) growth hit a post-pandemic low of 2.3 percent in the second quarter, slowing from 2.8 percent in the previous quarter. Deutsche Bank noted that the economy is already showing signs of strain from prior monetary tightening.

In a separate report, Deutsche Bank economist Junjie Huang pointed out that consumer spending growth decelerated to 2.8 percent—the lowest level since 2010, excluding the pandemic years—“as consumers turned more cautious amid the spike in inflation.”

This moderation in private consumption highlights the broader underperformance of the Philippine economy.

Despite cooling headline inflation, underlying price pressures remain pervasive. Deutsche Bank highlighted that the price diffusion index stayed high at 82 in July, indicating that four-fifths of the local consumer basket continues to experience “above-trend inflation.”

“In other words, inflationary pressure in the Philippines is still broad-based and spillover effects from the global energy shock are likely still working their way through the economy,” Huang said.

Looking ahead, a looming El Niño weather event—which Huang described as “very strong”—poses an upside risk to the inflation outlook. This “could compel the BSP to continue its tightening cycle” into late 2026 or early 2027.

While favorable base effects for food (excluding rice) might briefly pull headline inflation below 6 percent in the coming months, this relief is expected to be temporary once El Niño peaks in the fourth quarter.

Rice remains a primary pain point for Filipino households. “Rice price inflation is likely to stay high between 10-20 percent on low-base effects from 2025,” Huang noted.

Deutsche Bank has revised its 2026 headline inflation forecast down to 5.4 percent from six percent previously, balancing recent lower-than-expected inflation readings against lingering climate risks.