Even with weaker-than-expected economic growth in the second quarter and expectations of muted expansion for the year, Japanese investment bank Nomura Holdings Inc. expects the Bangko Sentral ng Pilipinas (BSP) to continue raising key borrowing costs to bring inflation back to its three percent target.

Nomura economists Euben Paracuelles and Nabila Amani lowered their full-year 2026 growth forecast to 3.8 percent from 4.6 percent after the second-quarter growth slowed to a new post-pandemic low of 2.3 percent.

However, Paracuelles and Amani expect pickup in the second half of 2026. Nomura’s updated gross domestic product (GDP) projection falls within the government’s revised target range of 3.5 percent to 4.5 percent.

Despite the economic slowdown, Nomura still penciled in another 50 basis points (bps) of interest rate hikes this year, specifically expecting a 25-bps adjustment at “each of the next two meetings of the Monetary Board.”

Raising rates twice more would bring the benchmark rate to 5.25 percent from the current 4.75 percent. The Monetary Board will hold its fourth policy meeting of the year on Aug. 27, followed by sessions on Oct. 22 and Dec. 17.

Nomura argued that the weak second-quarter GDP outturn “will unlikely derail BSP’s hiking cycle,” explaining that monetary authorities remain focused on stabilizing prices over 2027 and 2028. It added that the central bank continues to prioritize inflation control over domestic demand.

Headline inflation slowed to a three-month low of 6.2 percent in July from 6.4 percent in June and a peak of 7.2 percent in April. Core inflation, which strips out volatile food and energy items, also continued to ease.

“As we have argued before, BSP is also vigilant of the emergence of new sources of inflation risk in coming months, which could coincide with a turnaround in fiscal spending,” the Japanese lender said.

Given the persistent output gap in the second quarter, Nomura expects a non-aggressive policy adjustment in the near term.

For Australia and New Zealand Banking Group (ANZ), the moderation in price pressures could act as a speed bump for further monetary tightening.

“With inflation moderating in July and growth slowing, the pressure on the BSP to hike rates at this month’s monetary policy meeting will reduce,” ANZ foreign exchange analyst Kausani Basak and senior rates strategist Jennifer Kusuma said.

“However, we expect inflation to remain elevated over the rest of the year, particularly as El Niño-related supply pressures begin to feed through to food prices,” ANZ added.

On growth, ANZ believes a recovery in government infrastructure spending could drive a pickup in the coming quarters. It expects full-year GDP growth to average 3.9 percent, down from 4.4 percent in 2025.