DEUTSCHE BANK Research sees the Bangko Sentral ng Pilipinas (BSP) extending its tightening cycle with a fourth straight hike this month after inflation picked up faster than it anticipated in September.
In a report on Monday, the German bank said it expects the Philippine central bank to deliver another 25-basis-point (bp) rate hike at its Oct. 22 meeting.
“We bring our call for BSP’s 25-bp rate hike to 5.25% back to October 2026, after the upside surprise in inflation,” Deutsche Bank Economist Junjie Huang said.
“Moreover, underlying measures of inflation have intensified, at the same time that global oil prices have risen again to ~$100/b (per barrel) in early October versus ~$90/b at BSP’s last meeting in August,” he added.
The Monetary Board in August raised its benchmark rate by 25 bps to an over one-year high of 5% for a third straight meeting.
BSP Governor Eli M. Remolona, Jr. said then that the hike aims to rein in looming inflation risks from the super El Niño and minimum wage hike, as well as lingering pressures from volatile global oil prices.
He added that he hopes they wouldn’t have to increase the policy rate more, but remained open to additional hikes as needed to steer inflation closer to their 3% target.
A fourth straight 25-bp hike would bring total rate increases since April to 100 bps.
For Mr. Huang, the central bank may have to tighten its stance further to ensure inflation expectations remain anchored amid renewed price pressures.
“The risk of the BSP extending its policy tightening cycle is elevated, as the current policy stance may not be sufficiently restrictive to effectively anchor inflation expectations,” he said.
Last week, Mr. Remolona said they are now more worried than before about inflation expectations, although medium-term expectations are moving toward their target.
Headline inflation accelerated to a three-and-a-half-year high of 7.2% in September, matching this year’s peak first recorded in April, amid fresh price surges in food, fuel, housing, and utilities. This brought the year-to-date average to 5.4%.
Inflation has now been above the central bank’s 3% goal for seven consecutive months.
Deutsche Bank also raised its inflation forecasts to 5.7% from 5.5% for this year and to 4.2% from 4% for 2027, “given the earlier-than-expected rise in food prices and partially taking in the upside risk from El Niño.”
These are, however, below the BSP’s latest projections of 6.1% and 5.4%, respectively.
According to the Deutsche Bank economist, the country’s real interest rate, standing at -2.2% as of September, may remain the lowest among its peers until the end of the first quarter of 2027.
“Although BSP Governor Remolona expressed a hope in the August Monetary Board (MB) meeting that further hikes would not be necessary given growth concerns, these concerns are, in our view, secondary to the central bank’s primary mandate of price stability and low, stable inflation,” Mr. Huang added.
The central bank could even raise its benchmark rate further to 5.5% if the key inflation risks materialize later this year and into 2027, he said.
“However, additional rate hikes beyond October 2026 are not yet in our baseline view; we will update our outlook after BSP’s October 22 MB meeting. The BSP’s August MB meeting already cited El Niño and wage adjustments as significant upside risks,” he added.
Meanwhile, BDO Capital & Investment Corp. President Eduardo V. Francisco said the BSP could extend its tightening cycle with a quarter-point hike this month to contain inflation risks and support the peso.
“So, hopefully, maybe they increase it a little (just) enough to keep the peso at least from going to P64 at the same time so… inflation slows down,” he told reporters on the sidelines of an event on Friday.
This, as he expects the peso to remain volatile before ending the year between P60 and P62 to the dollar.
On Oct. 8, the peso logged a new record-low close of P62.90 against the greenback. The currency has been on a weakening path since the Middle East war started in February as the country’s dependence on imports makes it vulnerable to supply-side price shocks. — Katherine K. Chan