BSP surprises markets with a rate hike in April

Bank kick starts tightening cycle: At its meeting on 22 April, the Bangko Sentral Pilipinas (BSP) hiked its target reverse repurchase (RRP) rate by 25 basis points to 4.50%. The increase comes after a hold at an unscheduled meeting on 26 March and reversed February’s 25 basis point reduction. The hike took some analysts by surprise, as they had expected another hold.

Conflict in the Middle East hurts inflation outlook: The Central Bank decided to hike rates on higher inflation and inflation expectations due to the impact of the war in the Middle East. The BSP noted that higher oil and fertilizer prices have started to impact domestic price pressures, with core inflation accelerating through March. Moreover, the inflation outlook deteriorated: The BSP now sees headline inflation topping the upper bound of its 2.0–4.0% tolerance band in 2026–2027. Additionally, inflation expectations rose again, risking de-anchoring. Accordingly, the Bank deemed a timely, preemptive and measured increase in interest rates necessary to anchor inflation expectations.

Near two-year long easing cycle is over, long live rate hikes: The BSP provided no explicit forward guidance regarding future interest rate changes. A slim majority of panelists see room for additional increases this year, while the rest see the BSP holding rates stable at current levels through December. The Bank is scheduled to reconvene on 18 June.

Panelist insight: ING’s Deepali Bhargava noted: "We now expect an additional 50bp of hikes in 2026, assuming material deescalation in the US–Iran conflict by the end of 2Q. However, should disruptions persist, and Brent prices remain above USD 100/bbl for most of 2026, a deeper and more aggressive hiking cycle would likely follow.”

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