PHP: BSP starts new hiking cycle – Commerzbank

Commerzbank highlights that BSP raised its policy rate by 25bp to 4.50%, signalling the start of a new tightening cycle to anchor inflation expectations. Despite a hawkish tone and higher inflation forecasts, the Peso underperforming regional peers since the Iran war as the Philippines remains highly exposed to Middle East energy prices.

Rate hike fails to lift weak currency

"The Bangko Sentral ng Pilipinas (BSP) raised the target reverse repo rate by 25bp to 4.50%. The market consensus was split 50-50 on a rate hike in a Bloomberg poll. It was BSP's first rate hike since September 2023. The decision was aimed at anchoring inflation expectations and containing second-order inflationary effects. Historically, BSP has had a low tolerance for inflationary pressures. It tightened policy in 2018 and 2022 as headline CPI rose above BSP’s inflation target range of 2-4%. Headline CPI climbed to 4.1% yoy in March 2026."

"BSP Governor Remolona emphasized the central bank’s focus on price stability and revealed that 50bp hike was considered. He stated that this is the start of a new rate hike cycle. Governor Remolona noted that “Once we start raising the policy rate, we’re likely to do it again”. BSP downplayed the possible drag on growth from higher policy , suggesting that the current monetary policy stance “will still accommodate economic recovery over the medium term”."

"On growth, BSP lowered its full-year projection to 4.3% from 4.6% previously, below the government’s target range of 5-6%. BSP stated that they are confident that fiscal policy is sufficient to support growth. Nonetheless, risks are tilted to the downside amid supply chain disruptions from the Middle East conflict. Support from fiscal policies will be limited by slower public spending disbursements and weaker economic sentiment following several large-scale graft allegations concerning several politicians."

"Price pressures are expected to be more widespread in the coming months primarily through the transport costs and fertilizer price channels. As such, higher global commodity prices could spill over to goods and services in the core CPI basket, raising the risk of second-order impacts. BSP is also monitoring inflation expectations to ensure that the supply-side inflationary pressures do not distort wage-setting dynamics, keeping supply-side price pressures sticky."