UOB economists Julia Goh and Loke Siew Ting highlight that the Bangko Sentral ng Pilipinas (BSP) has started a new tightening cycle, lifting the Target Reverse Repurchase (RRP) rate to 4.50% and signalling further hikes. They now expect the policy rate to reach 5.00% by end-2026 as inflation projections rise above target and fiscal policy turns more supportive.

BSP starts renewed tightening cycle

"Forward guidance from both the latest monetary policy statement and the post-meeting press conference points to the onset of a tightening cycle, with further rate hikes likely over the remainder of the year. The BSP stated that the rate hike today (23 Apr) is intended to anchor inflation expectations and contain the build-up of second-round effects, while stressing that a measured pace of tightening would remain supportive of the medium-term economic recovery. It further affirmed that it stands ready to take all necessary monetary actions to ensure inflation returns to the 3.0% target, consistent with its primary mandate of maintaining price stability."

"While the BSP has emphasised a measured and data-dependent approach amid ongoing Middle East-related uncertainties, the policy bias has clearly shifted hawkish. The MB also underscored that any further tightening will be gradual so as not to derail the economic recovery. Against this backdrop, we now expect two additional 25bps rate hikes, one in Jun and another in 3Q26, which would lift the RRP rate to 5.00%, where it is expected to remain through end-2026."

"In other words, the latest policy decision underscores a renewed BSP focus on inflation risks over near-term growth concerns. The central bank now projects headline inflation to exceed the 4% upper bound of its target range in both 2026 (at 6.3%, vs 5.1% projected in Mar and UOB est: 5.5%) and 2027 (at 4.3% vs 3.8% previously and UOB est: 3.5%). Core inflation is also expected to rise towards the 4% tolerance ceiling, heightening the risk of inflation expectations becoming de-anchored amid more persistent price pressures from the prolonged Middle East crisis and continued fiscal support aimed at sustaining growth momentum."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)