By Katherine K. Chan, Reporter
THE Bangko Sentral ng Pilipinas (BSP) may deliver a fourth straight rate hike this month, with further tightening possible as intensifying price pressures complicate its fight against inflation, analysts said.
In a report on Wednesday, Fitch Solutions unit BMI said it expects the BSP to deliver a 25-basis-point (bp) hike this month to bring its key policy rate to 5.25%.
“Although the Bangko Sentral ng Pilipinas described its August hike as preemptive, the latest data suggest that inflationary pressures are proving more persistent,” BMI said. “We now expect the BSP to hike by another 25 bps in October, raising our end-2026 policy rate forecast to 5.25% from 5% previously.”
In August, the Monetary Board tightened for a third straight meeting in a preemptive move to rein in inflation risks from severe El Niño, wage hike, and volatile global oil prices.
It raised its key policy rate by 25 bps to an over one-year high of 5%, bringing its cumulative hikes to 75 bps since it first tightened in April.
BMI raised its full-year inflation forecast to 5.9% this year from 5.7% previously, and to 5% in 2027 from 4.7%, after the September reading came in faster than expected and the recent wage hike in Metro Manila.
Fresh surges in fuel, food, housing and utility prices drove headline inflation to its fastest pace in three-and-a-half years at 7.2% in September from 6.1% in August, matching this year’s peak recorded in April. This exceeded the 6.7% median estimate in a BusinessWorld poll of 22 analysts last week.
September snapped four straight months of deceleration, with the headline print holding above the BSP’s 3% target for a seventh consecutive month to bring the year-to-date average to 5.4%.
Core inflation, which discounts volatile food and energy prices, also picked up to a nearly three-year high of 4.7% from 4.1% in the previous month.
“Near-term inflationary pressures have intensified,” BMI said. “We have pushed back our expectation for a preliminary deal to resolve the US-Iran conflict into Q1 2027 from Q3 2026 previously. This indicates that oil prices will remain higher for longer, with heightened risk of second-round effects.”
The peso’s persistent weakness also warrants further BSP tightening, especially as the US Federal Reserve’s rate hike prospects continue to weigh on the local unit, BMI added.
“A weak peso further strengthens the case for tightening… An October rate hike by the BSP should help limit further peso depreciation and the spillovers into import prices,” it said.
The peso saw its weakest closing level at P62.86 on Sept. 14 and tumbled to its worst intraday trough of P62.925 on Sept. 15.
As of end-September, the peso has slumped by P3.85 or 6.15% from its P58.79 finish on Dec. 29, 2025, according to Bankers Association of the Philippines data.
Meanwhile, ING Bank N.V. noted that food price pressures are becoming more broad-based as domestic and external factors compound, even before the full impact of the “Super El Niño” is felt.
“While El Niño-related weather disruptions are contributing to higher food prices, a significant share of the inflation transmission appears to be occurring through higher transportation and production costs linked to elevated fuel prices,” ING Regional Head of Research for Asia-Pacific Deepali Bhargava said in a report late on Tuesday.
A “very strong” El Niño season is expected to last until the first half of 2027, according to the Philippine weather bureau.
“External factors are also adding to pressures, including Black Sea supply disruptions and higher global corn prices resulting from weaker crop yields in the US and Europe,” she added.
Food inflation heated up to an over three-year high of 6.7% in September from 4.6% in August.
Ms. Bhargava said mounting risks to food inflation and strong spillover effects of high fuel prices, as seen in the September reading, raised the odds of another 25-bp hike this month.
“The inflation outlook remains skewed to the upside amid lingering uncertainty over El Niño-related food supply disruptions, elevated energy prices, PHP (Philippine peso) weakness, and potential second-round effects from higher wages and food costs,” she said.
“BSP is likely to err on the side of caution and maintain a tightening bias to contain inflation expectations until it is confident that inflation is on a durable path back to target,” she added.
MORE HIKES
On the other hand, Maybank Investment Bank sees room for two more 25-bp policy rate increases this year as the September print prompted the bank to raise its full-year inflation forecast.
Maybank hiked its inflation projection to 5.9% this year from its prior 5.5% estimate. It expects inflation to ease to 4.6% next year from 5.1% previously.
“With inflation reaccelerating across food, transport, housing and services, alongside continued risks from El Niño-related supply disruptions and peso depreciation, we expect inflationary pressures to remain elevated in the near term,” Maybank Chief Economist Suhaimi Ilias, Economist Azril Rosli, and Senior Economic Analyst Fatin Nabila Mohd Zaini said in a separate report.
The Maybank economists noted that the BSP may hold its benchmark rate at 5.25% in 2027.
Meanwhile, Japan-based Nomura Global Markets Research has also priced in a fourth straight 25-bp hike, with growing inflation risks opening room for additional tightening.
“(W)e see the balance of risk to our inflation forecast as tilted to the upside, due to the possibility of a strong El Niño in the coming months, which could exacerbate the impact on already-high food inflation, especially if oil prices rise again,” Nomura research analysts Euben Paracuelles and Nabila Amani said.
“We believe BSP shares that view and will remain focused on containing these risks and anchoring inflation expectations, which suggests its hiking cycle could become more extended than our current baseline forecast,” they added.
In a separate report, Singapore-based United Overseas Bank Ltd. (UOB) said the BSP may tighten further until the first quarter of 2027 amid renewed inflationary pressures and projected Fed hikes.
It expects three consecutive 25-bp rate increases at the BSP’s Oct. 22 and Dec. 17 meetings, and its first meeting in 2027. If realized, this will bring the key policy rate to 5.75%.
“Core inflation rebounded to a 34-month high alongside the re-acceleration in headline CPI (consumer price index) growth despite 75 bps of cumulative BSP rate hikes this year, indicating persistent underlying price pressures,” UOB Senior Economist Julia Goh and Economist Loke Siew Ting said.
“Combined with the Fed’s increasingly hawkish stance and continued resilience in US growth, we now see a higher likelihood of further BSP policy tightening in the coming months, compared with our previous expectation of an extended pause through yearend,” they added.
Last month, the Fed ended its five-meeting-long pause after lifting its benchmark rates for the first time in three years by 25 bps to the 3.75%-4% range. The Fed is expected to hike further before yearend, with its Chairman Kevin Warsh noting that the US continues to confront rising price pressures.
However, BMI noted that the BSP’s October hike may cap its tightening cycle as the economy continues to grapple with sluggish growth.
“Weak growth should limit tightening beyond October,” it said. “As flagged in our earlier analysis, high frequency indicators point to a lackluster Q3, posing downside risks to our 3.3% growth forecast for 2026.
“The manufacturing PMI’s (Purchasing Managers’ Index) move into contractionary territory in September further supports our view of a weak recovery. Aggressive tightening would increase the strain on activity,” it added.
BMI said the BSP could revert to easing by late next year as inflation moderates below the BSP’s 4% ceiling in the fourth quarter of 2027. It sees a total of 50 bps in rate cuts to bring the central bank’s benchmark borrowing cost to 4.75% by the end of 2027.