Loans, credit could get costlier as BSP may raise rates anew
By Derco Rosal
Published Aug 24, 2026 12:00 am
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Updated Aug 22, 2026 03:16 pm
(From left) Romeo L. Bernardo, Rosalia V. De Leon, Frederick D. Go, Eli M. Remolona Jr., Benjamin E. Diokno, Walter C. Wassmer, and Jose L. Querubin.
Monetary authorities are widely expected to deliver a third consecutive 25-basis-point interest rate increase on Thursday, Aug. 27, as persistent supply disruptions, recent wage hikes, and a weakening currency keep inflation risks tilted to the upside.
A majority of private-sector economists surveyed project that the Bangko Sentral ng Pilipinas (BSP) will elevate its benchmark key policy rate to five percent from the current 4.75 percent.
The potential tightening comes as the Philippine peso recently touched a fresh record low of ₱61.995 against the U.S. dollar following the expiration of a two-month geopolitical truce between the U.S. and Iran.
“We expect the BSP to lift rates by 25 bps to 5 percent [this] week to build a buffer for inflation and forex risks amid dwindling reserves,” said Aris Dacanay, HSBC senior economist for ASEAN.
Along with the local currency, gross international reserves—the country’s stock of United States (US) dollars—settled at an 18-month low of $103.3 billion at end-July from $104.7 billion a month earlier. The decline stemmed from foreign currency asset drawdowns due to BSP market operations and government debt payments.
According to Dacanay, the local currency’s weakness is stirring concerns over foreign-exchange-induced inflation. To address this, the BSP could calm market jitters by building a buffer—through tightening—against potential policy moves by the U.S. Federal Reserve.
Dacanay added that a hawkish move would signal that monetary authorities are managing inflation effectively. This is particularly critical as consumers expect inflation to peak at nine percent over the coming year, while businesses expect it to remain elevated at 5.6 percent.
While Dacanay still sees a hawkish central bank, he does not expect the BSP to pause after another hike, noting that upside inflationary pressures could force policymakers to remain on guard.
Financial institutions MUFG Bank Ltd., ING, and United Overseas Bank (UOB) also share the view that the BSP will continue raising interest rates from the current 4.75 percent.
UOB economist Jasrine Loke pointed out that inflation remains above the BSP’s two percent to four percent target band, “with persistent upside risks from geopolitical tensions, weather-related supply disruptions, and minimum wage hikes.”
Headline inflation remains a concern despite easing to a three-month low of 6.2 percent in July from June’s 6.4 percent and April's peak of 7.2 percent. The BSP projects inflation to average 6.4 percent in 2026 and 4.5 percent in 2027.
Year-to-date inflation averaged five percent at end-July, staying above the government’s two percent to four percent target range deemed conducive to economic growth.
Deepali Bhargava, ING regional head of research for Asia-Pacific, said she leans toward a further hike given elevated underlying inflationary pressures. However, she noted the BSP remains cautious of the “recovery in Brent oil prices, food inflation remaining vulnerable to supply-side shocks, and recently announced wage increases.”
MUFG noted that the BSP retains room for additional hikes, citing inflation holding above six percent for four consecutive months—largely driven by the US-Iran conflict that erupted in late February.
UnionBank Philippines chief economist Ruben Carlo Asuncion noted that while inflation risks remain high, the BSP is also navigating a muted growth environment. While projecting a quarter-point hike, Asuncion highlighted the need for caution amid softer economic growth.
Asuncion said markets should closely monitor the BSP’s guidance beyond August “to assess the likelihood of a hike-pause approach moving forward.”
Conversely, Philippine National Bank (PNB) argued for a “hawkish hold,” citing post-pandemic low economic growth of 2.3 percent, the continued cooling of headline inflation, and the first moderation in core inflation in seven months (to 4.2 percent).
“However, since consumer prices are still rising above target, the BSP will make it very clear that it is prepared to resume raising the policy rate if necessary,” said PNB economist Alvin Arogo.