By Katherine K. Chan, Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) should act more aggressively at its Oct. 22 policy meeting to prevent red-hot inflation from squeezing purchasing power and further dampening household spending, New York-based think tank GlobalSource Partners, Inc. said.
In a commentary on Tuesday, GlobalSource Partners country analysts Diwa C. Guinigundo and Wilhelmina C. Mañalac said the BSP may hike its policy rate by 50 basis points (bps) at its Oct. 22 meeting.
“The objective is not to choose between price stability and economic growth,” they said. “It is to prevent the erosion of purchasing power and confidence from becoming another drag on an already struggling economy.”
If their call holds, the benchmark rate will rise to 5.5% from 5%, making it the highest rate in nearly two years or since February 2025. It would likewise match the policy rate set in April 2025.
A BusinessWorld poll of 22 economists conducted last week showed 20 expect the Monetary Board to deliver its fourth straight 25-bp hike, while two penciled in a 50-bp increase.
The BSP has so far lifted its key interest rate by a total of 75 bps since it began tightening in April.
Mr. Guinigundo and Ms. Mañalac noted that the central bank faces a tougher balancing act at its upcoming meeting as inflation remains stubborn while growth stays bleak.
“The Monetary Board meets on Oct. 22 against a much more difficult inflation backdrop than it faced only a few months ago,” they said.
This also comes amid price pressures emerging from various fronts including high global oil prices, the peso’s continued depreciation against the dollar, and the “Super El Niño,” the GlobalSource analysts noted.
“These pressures can reinforce one another, squeezing household budgets, and raising business costs,” they added.
Still, Mr. Guinigundo and Ms. Mañalac said the BSP has to deliver a larger half-point hike, noting that a smaller move might not be sufficient to rein in inflation pressures and keep expectations anchored.
“Our view is that a 50-basis-point increase is warranted. Headline inflation is accelerating, core inflation is rising, and the BSP’s own projections indicate that inflation will remain above its 2-4% target range in both 2026 and 2027,” they said.
“Meanwhile, global fuel prices, peso depreciation, and the potential effects of El Niño on food prices threaten to prolong the deterioration. The (BSP) needs to respond not just to where inflation is today, but to where it appears to be heading,” they added.
Inflation has held above the central bank’s 3% target for seven consecutive months or since the first full month of the Middle East war in March.
In September, it accelerated to a three-and-a-half-year high of 7.2%, matching this year’s peak first seen in April, amid fresh price surges in food, fuel, housing and utilities. This drove the year-to-date headline print to 5.4%.
Core inflation, which discounts volatile food and energy prices, accelerated to a nearly three-year high of 4.7% from 4.1% in the previous month and 2.6% a year ago.
The central bank’s projections as of its August meeting show that headline inflation could breach its target for two straight years at 6.1% this year and 5.4% in 2027, before easing to 3.3% in 2028.
BSP Governor Eli M. Remolona, Jr. in August said they may keep tightening as needed to ensure inflation returns to their target, later adding that they are now more worried about El Niño and inflation expectations.
Mr. Guinigundo and Ms. Mañalac said a larger move may also be more appropriate considering delays in monetary policy transmission.
“Monetary policy works with a lag. Waiting until all the risks have materialized could leave the BSP confronting a more persistent inflation problem, requiring a longer period of restrictive policy later,” they said. “A 50-basis-point increase would send a stronger signal that the (BSP) is determined to prevent temporary supply shocks from becoming a lasting feature of the inflation environment.”
Mr. Remolona has said that monetary policy adjustments typically take one-and-a-half to two years before fully feeding into the financial system.
Meanwhile, Mr. Guinigundo and Ms. Mañalac likewise noted that domestic demand may suffer further if the BSP fails to “act decisively enough.”
“Delaying an appropriate response could allow inflation to persist, eventually producing possible demand destruction as households cut consumption because their real incomes can no longer keep pace with prices,” they said.
Economic growth slumped for a fourth consecutive quarter to a new post-pandemic low of 2.3% in the April-to-June period, bringing the first-half expansion to 2.6%.
This came as public construction declined due to the lingering effects of last year’s flood control mess, while soaring prices dampened household spending.
Against this backdrop, Mr. Guinigundo and Ms. Mañalac also warned against excessive tightening, noting that the BSP must still strike a balance between its price stability mandate and supporting growth.
“Conversely, excessive tightening could further restrain investment, consumption, and growth,” they said.
“The challenge is therefore to strike a careful balance: act decisively enough to preserve price stability without unnecessarily deepening the slowdown, while complementing monetary policy with credible fiscal action and targeted measures to address food supply, energy costs, and other structural sources of inflation.”
Meanwhile, an economist said the central bank should prioritize curbing inflation as it treads its tightening path.
David G. Fernandez, a senior fellow at the University of the Philippines Diliman Center for Financial and Monetary Economics, noted that the BSP has a singular mandate of price stability, which must be its focus in making future monetary policy decisions.
“I think it’s important first to say that the mandate is singular, which is price stability. So, you know, the growth part, it’s not the focus now. It’s capping inflation, particularly inflation expectations,” Mr. Fernandez said during a webinar on Wednesday.
“No central bank can control the war in the Middle East and global energy prices. No central bank can control the weather and food prices. But the central bank can make it clear that if those shocks come and raise inflation, that they will do what it takes to cap the buildup of inflation momentum and getting that stuck in the system,” he added.
However, Mr. Fernandez noted that any economic recovery for the Philippines next year will likely be shallow and below potential.
As the economy remains sluggish and inflation cools down, the BSP may then reverse its policy path to start cutting rates next year, he added.
“The optimistic part… (is) not just growth, which is expected to rebound next year, but inflation is expected to fall, unemployment to fall, the current account deficit to fall, and all the BSP needs to be able to reverse some of the rate hikes… over the course of next year,” Mr. Fernandez said. After Thursday’s meeting, the Monetary Board will only have one more meeting this year on Dec. 17.