The research arm of German lender Deutsche Bank expects the Bangko Sentral ng Pilipinas (BSP) to deliver bigger interest rate hikes than previously anticipated as inflation risks intensify, while also lowering its economic growth forecasts for the Philippines amid mounting external pressures and weakening consumer spending.

In a report on Monday, May 25, Deutsche Bank Research economist Junjie Huang said the BSP could raise key interest rates by 50 basis points (bps) at its next policy move, whether through an off-cycle adjustment or during the Monetary Board’s (MB) scheduled June 18 meeting.

The revised expectation came after BSP Governor Eli M. Remolona Jr. reportedly said last May 22 that the central bank was considering an off-cycle rate hike ahead of the next policy-setting meeting.

“Our base case had the BSP hiking 25 bps each in its scheduled June and August meetings,” Huang noted.

“We read its announcement for an off-cycle hike as a signal that inflation expectations are unanchoring, which thus calls for more decisive action to be taken, given that April’s 7.2-percent year-on-year inflation print was sharply above all market forecasts, including the BSP’s, while more inflation is in the pipeline,” he added.

Deutsche Bank Research now expects the BSP to raise rates by a cumulative 75 bps by August, bringing the policy rate to 5.25 percent from the current 4.5 percent, compared to its earlier expectation of only 50 bps in tightening.

The report also flagged worsening external sector pressures after the Philippines posted a balance of payments (BOP) deficit of $7.4 billion as of end-April, wider than the $5.5-billion gap during the same period last year.

“This suggests that external pressures on the economy are building and the risk of the BOP deficit running higher than BSP’s $7.8-billion forecast for the year is non-negligible, which is also likely to spill over to growth,” Huang said.

According to Deutsche Bank Research, elevated oil prices stemming from the ongoing Middle East conflict would continue to weigh on the Philippines, with oil prices still expected to remain 25 percent to 30 percent higher year-on-year on average even if crude gradually falls to $80 to $90 per barrel by end-2026.

The report also warned that food prices may continue climbing, while overseas Filipinos’ (OFs) remittances have shown signs of softening amid the conflict’s economic fallout.

“Remittances went through a soft patch in March amid the onset of the conflict, with the 2.3-percent year-on-year growth the lowest since June 2023, and it is still uncertain if a durable recovery could take place,” Huang said.

Given these risks, Deutsche Bank Research further cut its Philippine gross domestic product (GDP) growth forecast for 2026 to 3.7 percent from the previous 4.4-percent estimate, well below the government’s target range of five to six percent for this year and worse than the post-pandemic-low 4.4-percent economic expansion last year in the aftermath of the billion-peso flood-control infrastructure corruption scandal.

For 2027, it lowered its projection to 5.8 percent from 6.1 percent previously, although this remains within the government’s 5.5- to 6.5-percent growth goal for next year.

“Net trade could drag growth more than we initially expected, while the weakness in household consumption could persist as real disposable income erodes,” Huang explained.