BSP expected to raise key rate for third straight meeting

MANILA, 24 AUGUST 2026 —

Poll: BSP Set to Raise Rates Again as Inflation Pressures Persist

MANILA, Aug 23 — The Bangko Sentral ng Pilipinas (BSP) is widely expected to deliver another 25-basis-point rate hike this week, marking its third consecutive increase, as stubborn inflation pressures outweigh concerns over tepid economic growth, according to a BusinessWorld poll.

Nineteen of 24 analysts surveyed by BusinessWorld anticipate the central bank’s Monetary Board will raise the key reverse repurchase rate to 5% from the current 4.75% on Thursday, Aug 27. If implemented, this would be the highest policy rate since June 2025, when it stood at 5.25%, and would match the benchmark level set in August 2025. Five analysts, however, predict the BSP will hold rates steady amid weak economic conditions.

The BSP began its tightening cycle in April, implementing two consecutive 25-bp hikes to combat inflation fueled by energy shocks. While headline inflation has eased for three straight months—dropping to 6.2% in July—it remains above the central bank’s 3% target for the fifth consecutive month. Core inflation, which excludes volatile food and energy prices, also eased slightly to 4.2% from 4.4% in June, though it remains elevated compared to 2.3% a year earlier.

Analysts argue that persistent price pressures, particularly in food and energy, alongside risks from geopolitical tensions in the Middle East and peso weakness, justify further tightening. Oxford Economics Assistant Economist Jun Hao Ng noted that while second-quarter GDP growth slowed and July inflation softened, inflation risks remain tilted to the upside.

“Rising food prices and persistent tensions in the Middle East are likely to keep inflation elevated through the second half, while second-round effects remain a concern,” he said.

Moody’s Analytics Assistant Director Sarah Tan echoed this view, citing renewed pressure on the peso as a key risk. “While weak second-quarter GDP growth could prompt a pause, we think the odds are tilted towards another 25-basis-point hike,” she said. “Inflation remains sticky and well above the BSP’s target range, while renewed peso weakness adds to imported inflation pressures.”

Inflation Takes Priority Over Growth Concerns Several analysts believe the BSP will prioritize its inflation-targeting mandate despite sluggish economic performance. Nomura Chief ASEAN Economist Euben Paracuelles emphasized that the central bank’s orthodox approach to inflation targeting would likely override growth concerns. “The weak Q2 GDP print will unlikely derail BSP’s hiking cycle given its orthodox approach to its inflation-targeting framework,” he said.

De La Salle University economist Marites M. Tiongco highlighted two critical factors the BSP will consider: the persistence of inflation and whether inflation expectations remain anchored. “The BSP will look at the persistence of inflation, not just the headline rate,” she said. “The question is whether inflation is broadening into core goods and services or remains concentrated in supply-side components.”

BSP Governor Eli M. Remolona Jr. previously stated that inflation expectations remain well anchored, with the central bank’s latest survey projecting headline inflation easing to 5.4% over the next 12 months from 6% in June. However, he left room for further hikes to ensure inflation returns to target, acknowledging that tepid growth may limit the central bank’s aggressiveness.

Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion described a final hike as a way to reinforce the BSP’s commitment to price stability while preserving policy credibility.

Analysts Weigh Growth Risks Against Inflation Fight A minority of analysts argue that the BSP may pause to assess the cumulative impact of past tightening on the fragile economy. China Banking Corp. Chief Economist Domini S. Velasquez noted that the economy is operating below potential, reducing the urgency for further hikes. “The case for a hold is getting stronger because the economy is already operating below potential, leaving little evidence of demand-driven inflation,” she said.

Ateneo Center for Economic Research and Development Senior Research Fellow Ser Percival K. Peña-Reyes suggested the BSP could balance inflation and growth concerns by holding rates steady while signaling its policy path. “It allows the BSP to assess the cumulative effects of past tightening while preserving flexibility,” he said. “Keeping rates unchanged would still represent a restrictive monetary stance.”

Economic Slowdown Deepens as Inflation Persists The Philippine economy grew just 2.3% in the second quarter, down from 5.4% a year earlier and 2.8% in the previous quarter, as inflation-driven oil shocks dampened household spending and lingering governance issues weighed on investments. This marked the fourth consecutive quarter of deceleration, the worst performance since the pandemic when GDP contracted by 3.8% in Q1 2021.

Excluding the pandemic, it was the slowest expansion in over 16 years, since the 1.8% growth recorded in Q4 2009.

For the first half of 2026, GDP growth averaged 2.6%, reflecting a broader slowdown in economic activity.

Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco suggested that headline inflation and second-order effects may have peaked, giving the BSP reason to pause. “Clearly, the worst of the inflation spike from the war is over, and the economy is still battling with an ongoing slowdown in headline growth,” he said. He projected full-year inflation at 5.3% in 2026, easing to 2.7% in 2027—below the BSP’s forecasts of 6.4% and 4.5%, respectively.

“If we’re right about the BSP pausing this week, then this stand-still could hold for the foreseeable future, until the middle of next year, when we expect its postwar tightening to be reversed,” he added.

Room for Further Tightening Remains S&P Global Market Intelligence Principal Economist Harumi Taguchi believes the BSP still has scope for additional tightening, citing persistent inflationary pressures from global oil and fertilizer prices, as well as potential El Niño impacts. However, she acknowledged that signs of economic weakness could limit the central bank’s room to maneuver.

The BSP’s decision this week will hinge on whether it prioritizes inflation containment or growth stabilization, with analysts divided on the optimal path forward. What remains clear is that inflation, while easing, continues to pose a significant challenge to policymakers in the Philippines.

Related: Intel · Bangko Sentral