THE BANGKO SENTRAL ng Pilipinas (BSP) may hike by as much as 50 basis points (bps) amid lingering spillover price effects despite the softer-than-expected headline inflation in May, economists said.
In a commentary on Monday, Deutsche Bank Research economist Junjie Huang said a larger rate increase may be warranted as last month’s easing inflation is likely short-lived, with renewed price pressures looming from electricity, food and other basic goods.
“Our view of BSP hiking by 50 bps in the June MB (Monetary Board) meeting is unchanged as we think the lower print may only be temporary — and it is still materially above BSP’s 2-4% target — as broad price pressures are still building up in the economy, and our outlook for global inflation dynamics is still elevated,” he said.
However, HSBC Senior ASEAN Economist Aris D. Dacanay said the BSP might not be compelled to tighten earlier than scheduled, contrary to prior expectations following the central bank chief’s off-cycle hint last month.
“We think this outcome removes the urgency of doing an off-cycle rate hike,” he said in a separate commentary on Monday. “As of this writing, May CPI (consumer price index) has provided some relief to the peso, minimizing the need to tighten monetary policy now to mitigate the risk of FX (foreign exchange)-induced inflation.”
Still, Mr. Dacanay anticipates a 50-bp rate hike at the Monetary Board’s meeting next week, though noted that the downward surprise from May inflation has raised the odds of a 25-bp move.
BSP Governor Eli M. Remolona, Jr. said last month that they are considering an off-cycle tightening, citing risks of the central bank falling behind the curve amid broadening second-order price effects. He added, however, that they may also wait until their June 18 meeting to assess the May inflation data.
The May inflation reading bucked projections, with the headline print cooling to 6.8% from the over three-year high of 7.2% in April, undershooting the 7.9% median estimate in a BusinessWorld poll of 16 economists and the BSP’s 7.1%-7.9% forecast.
However, core inflation, which discounts volatile food and energy prices, breached the central bank’s target for the first time in two-and-a-half years. It hit 4.1% in May, the quickest core inflation since the 4.4% recorded in December 2023.
For Maybank analysts Azril Rosli and Suhaimi Ilias, this means the second-order effects of oil shocks are widening and becoming more persistent.
“While the BSP has consistently highlighted the limited effectiveness of monetary policy in addressing supply-driven shocks, the continued rise in core inflation suggests that second-round effects are gaining traction, particularly across transport, housing, utilities, and services-related sectors,” they said in a commentary dated June 5.
In April, the Monetary Board reversed its easing cycle by raising the key policy rate by 25 bps to 4.5%, as it sought to contain broadening spillover effects and anchor inflation expectations.
Prior to the MB’s April 23 meeting, Mr. Remolona also noted that they were trying to focus more on controlling the core print and inflation for the bottom 30% of income households.
Patrick M. Ella, a portfolio manager and an economist at Sun Life Investment Management and Trust Corp., said headline inflation still risks breaching the double-digit mark by July or August.
“But the important point there is (that) the core inflation (is) still climbing,” he told Money Talks with Cathy Yang on One News on Monday. “So that tells you that the second-round effects that the BSP is looking at will definitely carry over in the succeeding months.”
Mr. Ella did not rule out a 50-bp increase at the June 18 review, but noted that a smaller 25-bp hike may be more definite.
Meanwhile, Nomura Global Markets Research now sees Philippine inflation averaging 5.5% by yearend, slower than its 6.1% earlier estimate, if Brent crude oil trades at an average $98.4 per barrel this year.
“Taking into account the lower-than-expected outturn (in May), we reduce our 2026 headline CPI forecast to 5.5% after raising it to 6.1% only last month, in part reflecting the fluctuations in global crude oil prices and the quick pass-through to domestic retail fuel prices in the absence of subsidies,” Nomura research analysts Euben Paracuelles and Nabila Amani said in a report.
However, Mr. Paracuelles and Ms. Amani said the impact of the expected El Niño season later this year risks stoking inflation, particularly food prices.
They expect the central bank to continue tightening this year before easing anew by the second half of 2027.
“We think BSP will view any further increase in core inflation as a sign of second-round effects that require vigilance,” the Nomura analysts said. “Nonetheless, we expect no off-cycle meeting by BSP and only measured 25-bp hikes in each of the next three meetings starting on June 18, consistent with peaking headline inflation.”
Last week, the BSP reaffirmed its commitment to bring inflation back to its 3% target using all necessary monetary policy measures as part of its price stability mandate.
The Monetary Board still has four regular meetings left this year, scheduled for June 18, Aug. 27, Oct. 22 and Dec. 17. — Katherine K. Chan
