BSP raises rates in June

Rates up by 50 basis points since April: At its meeting on 18 June, the Monetary Board of Bangko Sentral Pilipinas (BSP) raised its Target Reverse Repurchase (RRP) Rate by 25 basis points to 4.75%, largely in line with market expectations. BSP has raised its policy rate by a cumulative 50 basis points since April this year—ASEAN’s second-most hawkish response to the Iran crisis, after that of Bank Indonesia.

Rate hiked to rein in inflation: The Central Bank's decision was primarily driven by strong inflationary pressures: Higher global oil and fertilizer prices are pushing up domestic fuel and food costs, and rising core price pressures suggest that the price shock is spreading across the broader economy. The BSP projects that average inflation will exceed its 4.0% tolerance ceiling in 2026 and 2027, necessitating monetary policy tightening to anchor inflation expectations and mitigate upside risks.

BSP to hike again by December: The Monetary Board stated that it is prepared to take further monetary action as needed to ensure inflation returns to the 3.0% target. In line with this view, as well as with our Consensus of above-target inflation this year, almost all of our panelists expect at least 25 basis points of further hikes by December, while a minority sees rates on hold. Potential rate hikes by the U.S. Fed and a severe El Niño weather event materializing later this year pose upside risks to the RRP Rate. BSP is set to reconvene on 27 August.

Panelist insight: Nomura’s Euben Paracuelles and Nabila Amani commented: “We maintain our forecast that BSP will hike by another 50bp this year to 5.25%, but it will still take a measured approach, in line with today’s guidance from BSP. As such, we expect BSP to hike by 25bp at each of the next two meetings, i.e. in August and October. These hikes remain warranted based on our forecast that headline inflation remains above BSP’s 2-4% target range in coming months, even if already peaking. Importantly, we continue to think core inflation remains on an upward trajectory until Q4, which BSP will continue to see as a risk of a buildup in second-round effects, requiring more monetary tightening.”

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