Further BSP hikes seen despite tepid economy

THE Bangko Sentral ng Pilipinas (BSP) will likely tighten further to curb spiraling prices, though the still sluggish economy may prevent it from acting aggressively, Singapore’s United Overseas Bank Ltd. (UOB) said.

In its quarterly global outlook, UOB Global Economics & Markets Research said it sees two more 25-basis-point (bp) rate hikes, including one in June and another within the third quarter, before the BSP holds off until the yearend.

“While the April monetary policy rate decision signals a renewed policy focus on inflation, weak growth is likely to constrain the scope for aggressive or off‑cycle tightening ahead of the June 18 meeting,” UOB said in its report.

“Policymakers are expected to adopt a calibrated, data‑dependent approach, balancing inflation risks against softening growth, with greater reliance on targeted fiscal measures alongside gradual monetary tightening amid rising stagflation risks,” it added.

Economic growth was at a new post-pandemic low of 2.8% in the first quarter, reflecting the severe impact of the oil shocks that emerged toward the end of the period.

UOB projects Philippine gross domestic product (GDP) growth at 3.2% this year from 4.4% in 2025 due to geopolitical risks and the looming El Niño.

Prior to the release of the first-quarter GDP report, the BSP had shifted to a hawkish stance as rising inflationary pressures due to the energy crisis warranted a reversal of its monetary policy path.

It delivered its first 25-bp rate hike in over two years at its April 23 meeting, bringing the benchmark interest rate to 4.5% as it sought to control second-round price effects and keep inflation expectations anchored.

Meanwhile, MUFG Global Markets Research said the Philippines continues to face the most severe price shocks in the region, giving the BSP more reason to keep tightening policy.

“The inflation shock is most acute in the Philippines, though headline CPI (consumer price index) eased to 6.8% year on year in May from 7.2% in April,” MUFG analysts said in a June 5 report. “Nonetheless, the May reading is still well above BSP inflation target, which could spur further BSP tightening.”

The central bank noted that the inflation environment remains challenging due to the fighting in the Middle East, with inflation expectations still elevated despite the downward surprise in May.

On Friday, the BSP signaled anew that further monetary policy action is in prospect as it aims to steer inflation back to its 3% target in keeping with its price stability mandate.

MUFG sees the BSP still delivering an additional 75-bp worth of rate increases to bring the policy rate to 5.25% by year’s end.

The Monetary Board’s next policy review is set for June 18. It is scheduled to hold three more regular meetings later this year on Aug. 27, Oct. 22 and Dec. 17. — Katherine K. Chan