UOB economists Julia Goh and Loke Siew Ting note that Philippine inflation unexpectedly declined in May but remains above the Bangko Sentral ng Pilipinas (BSP) target, keeping risks tilted to the upside. They expect the BSP to hike 25 bps to 4.75% on June 18 and another 25 bps to 5.00% in 3Q26, then maintain interest rates to shore up expectations and support the Philippine peso (PHP).
BSP saw an raise to 5.00 percent
“Despite slower-than-expected headline inflation, risks to the near-term inflation outlook remain skewed to the upside.”
“We therefore maintain our inflation forecast for the full year 2026 at 7.5% for now (BSP estimates: 6.3%; 2025: 1.7%).”
“That said, a softer headline combined with weak GDP growth in the first quarter of 2026 will likely moderate the BSP’s policy response (in the form of overly large interest rate increases) at the June 18 Monetary Board meeting.”
“We continue to expect a gradual increase in the reverse repurchase rate (RRP) of 25 basis points to 4.75%, followed by a further increase of 25 basis points to 5.00% in the third quarter of 2026, with rates maintained thereafter to achieve a balance between anchoring inflation expectations towards the target in early 2027 and maintaining growth momentum in the face of prevailing global uncertainty.”
“The tightening of monetary policy will also be complemented by targeted fiscal measures, in particular aimed at stabilizing food prices, where necessary.”
(This article was created with the assist of an artificial intelligence tool and has been reviewed by an editor.)
