UOB economists Julia Goh and Loke Siew Ting note that Philippine inflation unexpectedly eased in May but remains above the Bangko Sentral ng Pilipinas (BSP) target, keeping risks tilted to the upside. They expect the BSP to deliver a 25bps hike to 4.75% on 18 June and another 25bps to 5.00% in 3Q26, then hold rates to anchor expectations and support the Philippine Peso (PHP).

BSP seen hiking to 5.00 percent

"Notwithstanding the slower-than-expected headline inflation outturn, risks to the near-term inflation outlook remain skewed to the upside."

"Thus, we retain our full-year 2026 inflation forecast at 7.5% for now (BSP est: 6.3%; 2025: 1.7%)."

"That said, the softer headline print alongside subdued 1Q26 GDP growth is likely to temper the BSP’s policy response (of outsized rate hikes) at the 18 Jun Monetary Board meeting."

"We continue to expect a gradual 25bps increase in the reverse repurchase (RRP) rate to 4.75%, followed by a further 25bps hike to 5.00% in 3Q26, with rates held thereafter to strike a balance between anchoring inflation expectations toward target by early 2027 and preserving growth momentum amid prevailing global uncertainties."

"Monetary policy tightening will also be complemented by targeted fiscal measures, particularly to stabilize food prices when necessary."

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