The Bangko Sentral ng Pilipinas (BSP) may have room to raise interest rates further as inflation remains elevated and emerging risks from El Niño, food prices, oil costs and a weaker peso continue to threaten the country’s price outlook.
ANZ Research said the BSP’s real interest rate remains in an “accommodative” zone, giving the central bank policy space to tighten further if inflation risks intensify. The assessment comes after the Monetary Board delivered three consecutive 25-basis-point rate increases, bringing the target reverse repurchase rate to 5 percent.
ANZ expects another 25-basis-point increase in the fourth quarter, which would bring the policy rate to 5.25 percent by the end of 2026. The research firm cited potential price pressures from emerging El Niño conditions, higher rice prices and wage increases.
The BSP has indicated that its recent tightening was intended as a preemptive response to inflation risks. Governor Eli Remolona Jr. said the central bank would tighten monetary policy as needed to bring inflation back toward its target, although officials have also indicated that another increase may not ultimately be necessary if price pressures ease.
Headline inflation eased slightly to 6.1 percent in August from 6.2 percent in July, but the rate remained well above the BSP’s 3 percent target. Inflation averaged 5.2 percent during the first eight months of 2026, while core inflation eased to 4.1 percent.
Oil prices remain another source of uncertainty. ANZ said renewed increases in global crude prices could create additional upward pressure on Philippine inflation, particularly because the country relies heavily on imported energy. Higher oil costs can also put pressure on the peso by increasing the country’s import bill.
The BSP has also raised its inflation outlook for 2027 to 5.4 percent, from its previous 4.5-percent forecast, largely because of the potential effects of severe El Niño conditions on rice prices and assumptions about higher minimum wages. The central bank expects inflation to return to its target over time.
The peso adds another complication. ANZ expects the currency to weaken to around P64 per US dollar by year-end, citing the country’s external deficit, elevated oil import costs and tighter US monetary policy. A weaker peso can increase the local cost of imported goods and fuel, adding to inflationary pressure.
At the same time, further rate increases carry risks for an economy already facing weak growth. Former BSP Deputy Governor Diwa Guinigundo has said the central bank needs to balance sufficient interest-rate support against the possibility that excessively high borrowing costs could weigh on investment and economic activity.
The latest outlook therefore leaves the BSP facing a difficult policy balance: keeping inflation expectations under control while avoiding additional pressure on borrowing, investment and economic growth. Whether another hike is delivered will depend on incoming inflation, growth, exchange-rate and capital-flow data, as well as developments in oil prices and El Niño conditions.
