By Katherine K. Chan, Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) may have to extend its tightening cycle with a fourth straight quarter-point hike on Thursday to contain fresh and persistent inflationary pressures, analysts said.
A BusinessWorld poll conducted last week showed 20 of 22 economists expect the Monetary Board to raise the target reverse repurchase rate anew by 25 basis points (bps) to 5.25% at its Oct. 22 meeting.
If this holds, the key policy rate will match the benchmark rate set in June 2025 and will be the highest in one-and-a-half years or since 5.5% in April 2025.
Since the Monetary Board began tightening in April, it has so far lifted key borrowing costs for three consecutive meetings by a total of 75 bps.
If realized, this would bring the benchmark rate to 5.5%, the highest since 5.75% in February 2025.
Economists polled said worsening inflation risks warrant another BSP rate hike to contain price pressures and keep inflation expectations anchored.
S&P Global Market Intelligence Principal Economist Harumi Taguchi said they expect the BSP to raise its policy rate by 25 bps on Thursday.
“Although inflation in the first nine months remained below the BSP’s 2026 projection, September’s sharp increase and persistently high global oil prices have raised upside inflation risks,” she said via e-mail.
Nomura Chief ASEAN Economist Euben Paracuelles said the central bank may also deliver another quarter-point hike as heated core inflation signals broadening price pressures.
“We expect BSP to raise its policy rate for (the) fourth time in a row by 25 bps to 5.25%, with inflation resurging to 7.2% in September, well above BSP’s 2-4% target. Importantly, core inflation also soared, which we believe BSP will judge as a sign of more second-round effects that require additional tightening,” he said in an e-mail.
“The tone of the policy statement and comments will likely remain hawkish, with BSP continuing to pledge vigilance and remain focused on anchoring inflation expectations,” he added.
In September, fresh surges in fuel, food, housing and utility prices drove headline inflation to its fastest pace in three-and-a-half years of 7.2% from 6.1% in August.
It matched this year’s peak first seen in April and was sharply faster than the 1.7% clip seen in September 2025.
September marked the seventh month in a row that inflation blew past the BSP’s 3% target, with the year-to-date inflation standing at 5.4%.
Meanwhile, core inflation also accelerated to a nearly three-year high of 4.7% from 4.1% in the previous month and 2.6% a year prior.
Core inflation strips out volatile oil and food prices, allowing policymakers like the BSP to determine whether prevailing consumer price movements reflect short-lived disruptions or a long-term trend.
For Ser Percival K. Peña-Reyes, a senior research fellow at the Ateneo Center for Economic Research and Development, potential food price shocks from the El Niño will be among the BSP’s key considerations for Thursday.
“Potential drought and agricultural supply disruptions could push food prices higher over the coming months,” he said in an e-mail, adding that BSP Governor Eli M. Remolona, Jr. has identified El Niño as a major near-term risk.
Mr. Remolona earlier said that a severe El Niño is their top inflation concern, saying that their next policy decision will take into account the “benign” and “bad” El Niño scenarios.
The Philippine Atmospheric, Geophysical and Astronomical Services Administration has said that a strong El Niño is active in the Tropical Pacific, which could intensify further until December and persist until the first half of 2027.
Meanwhile, analysts said the persistently weak peso also warrants support from the BSP’s tightening.
“Beyond inflation, the peso has been sliding and foreign exchange reserves have sunk to their lowest level in just over three years. Tighter monetary policy would help shore up support for the currency,” Moody’s Analytics Associate Economist Eugene Tan said in an e-mail.
On Oct. 15, the peso fell by 19 centavos to close at P63.06 against the dollar from its P62.87 finish on Wednesday, based on Bankers Association of the Philippines data.
This marked the first time that the local unit breached the P63 handle, breaking the previous record low of P62.90 on Oct. 8.
The country’s gross international reserves (GIR) dropped by 8.3% to $99.997 billion in the nine months to September, the lowest level since September 2023.
Mr. Remolona has said the central bank does not defend the peso at a specific level at the risk of depleting the country’s GIR, noting they only intervene in the foreign exchange market to smoothen inflationary swings.
MORE ROOM FOR HAWKS
On the other hand, two analysts polled by BusinessWorld priced in a 50-bp rate hike on Thursday, saying that a more aggressive move could prevent the BSP from falling behind the curve.
“The magnitude of the rate hike (on Thursday) will likely depend on the behavior of the peso in the coming days. If the peso depreciates further and moves closer to P64, the BSP may consider a 50-bp hike on Thursday,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said in a report.
Mr. Neri likewise noted that a larger 50-bp increase would allow the central bank to preemptively contain risks from the looming “Super El Niño.”
“A larger hike could also be presented as a preemptive move against second-round effects and the rapid de-anchoring of inflation expectations, especially ahead of the potential supply shock from El Niño,” he said.
Meanwhile, Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said a bigger hike could better address inflationary pressures and help keep the BSP ahead of the curve.
“The bigger risk today is not doing enough,” he said in a Viber message. “A 50-bp hike reinforces BSP credibility, anchors inflation expectations, and prevents inflation from becoming more entrenched. Falling behind the curve could ultimately hurt both growth and consumer confidence.”
Several economists see the central bank extending its tightening path further until December.
“Our base case sees another 25-bp hike in December on top of this October meeting, setting the policy rate at 5.5% by yearend before standing pat for 2027,” Marco Antonio C. Agonia, economist at the University of Asia and the Pacific, said in an e-mail.
“Upside inflation risks remain significant with the aggressive dry season disrupting agricultural supply chains and raising food price pressures, a heavily weighted and more inflation expectation-eroding segment of the consumer price basket, made more tenuous by on-and-off oil price spikes,” he added.
Economists also noted that the need for price stability will likely outweigh growth concerns in the central bank’s upcoming monetary policy decisions.
“Yes, growth continues to sputter. But the risk of inflation breaking out of its cage is too large to ignore,” Aris D. Dacanay, a senior ASEAN economist at HSBC Global Investment Research, said in a report. “(This) week is unlikely to mark the end of the BSP’s tightening cycle.”
The economy slumped for a fourth consecutive quarter to a post-pandemic low growth of 2.3% in the second quarter, also marking the slowest non-pandemic expansion in over 16 years or since the 1.8% in the fourth quarter of 2009.
Economic managers want the country’s gross domestic product (GDP) to settle at 3.5%-4.5% this year, which means the economy has to grow by at least 4.4% in the second half.
After its August meeting, the BSP said growth will likely begin to pick up in the fourth quarter supported by fiscal measures, with a full rebound expected by 2027. It likewise noted that the country’s medium-term economic fundamentals remain solid.
For Mr. Neri, the expected economic recovery opens more room for the BSP to remain hawkish until next year.
“The domestic growth outlook may also provide the BSP with greater flexibility to tighten policy further,” he said. “Despite the drag from inflation, GDP growth is expected to improve in the second half of the year, supported by favorable base effects and a potential recovery in government spending. Stronger economic activity could give the BSP greater confidence that the economy can absorb additional rate hikes.”
However, the lackluster growth backdrop and the limited impact of monetary policy tightening on supply-side pressures could prompt the BSP to stand pat after its fourth straight hike.
“With the economy remaining weak, a lower 2027 inflation forecast and limited response of the peso to previous rate hikes could strengthen the case for October’s hike to be the final one in the current tightening cycle,” China Banking Corp. Chief Economist Domini S. Velasquez said in an e-mail.
The BSP expects headline inflation to average 6.1% this year before easing to 5.4% in 2027 and 3.3% in 2028.
After this week’s meeting, the Monetary Board will hold its last policy review this year on Dec. 17.