By Katherine K. Chan, A reporter
BANGKO SENTRAL ng Pilipinas (BSP) may raise its key policy rate to 5.5%. at the end of 2026 as inflationary pressure strengthen within the Philippines’ greater exposure to the energy crisis, said Fitch Solutions BMI division.
Based on its latest predictions received by BusinessWorldBMI now expects the Philippine central bank to deliver an additional 100 basis points (bps) of rate hikes in its remaining policy meetings this year.
The research firm previously said the BSP will end its tightening cycle once interest rates reach 5%, as the country’s weak growth prospects prevent further increases.
The revision came as the BMI now sees global inflation at 6.1% in 2026, higher than its estimate of 5.6% earlier this month and the 3.1% forecast before the outbreak of the Middle East war in late February.
If it does, inflation will be above the bank’s target of 2%-4% but below its annual average of 6.3%.
Yen Nee Lee, a senior Asian country risk analyst at BMI, noted that the rapid transmission of the oil shock to the Philippine economy led the research firm to make major revisions to its forecast for the country compared to other Asian countries.
“Growth was already weak coming into the crisis, but inflation picked up and forced the central bank’s hand,” he said on Tuesday. “And this also explains why our forecast updates for the Philippines are the largest for the rest of the region.”
Before the Iran war, the Philippine economy posted the weakest growth since the COVID-19 pandemic at 4.4% in 2025 as a flood. control mess fallout has been reduced thisinvestment and spending.
Growth continued to soften for the third consecutive quarter as gross domestic product (GDP) grew by 2.8% in the January to March period from 3% in the previous quarter and 5.4% in the first quarter of 2025.
The economy is expected to remain fragile as soaring inflation amid the energy crisis tightens housing consumption.
In April, inflation rose to its fastest pace in three years at 7.2% as rising oil prices continued to feed into the cost of capital goods such as food, transport and utilities. This marked the second month in a row that the headline clip breached the BSP target.
Economists have warned that the effects of the power crisis could spread in the coming months, keeping inflation high throughout the year.
For BMI, this would also mean that Philippine GDP growth will come in at a full-year 3.9%, the worst in the post-pandemic period and below the government’s target of 5%-6%.
Mrs. Lee noted that the Philippines’ difficult financial environment leaves it with no choice but to let domestic fuel prices reflect rising global prices.
He said he was surprised at how quickly the Philippine economy was affected by the oil shock.
In the decision of the Finance Board to stand firm in the informal meeting in late March, Ms. Lee said this may indicate that the BSP is prioritizing economic growth over inflation at that time.
“But after one month, when the growth problems became more prominent, the central bank finally moved on rates, and decided that it could not ignore the supply of high energy prices,” said Ms. Lee. “So, this shows how quickly things can change and how an emerging market can be caught in a very difficult environment.”
At its April 23 meeting, the Monetary Board raised its policy rate by 25 bps to 4.5%, marking its first hike since October 2023, as it sought to cushion the effects of the second round of inflation and keep inflation expectations grounded amid rising risks from the Middle East war.
BSP Governor Eli M. Remolona, Jr. he left the door open to other areas as they aim to return inflation to the 3% target, and even hinted at a possible tightening ahead of the June policy review.
Meanwhile, Nomura Global Markets Research still expects the central bank to raise the policy rate by an additional 75 bps, starting with a second straight 25-bp hike on June 18.
If possible, this will bring the rate to stand at 5.25% by the end of the year.
“We think the BSP will remain moderate and the cyclical downside is very small as the output gap remains negative and political uncertainty increases, which may affect the financial outlook,” said Nomura’s ASEAN Head of Economics Euben Paracuelles and economist Nabila. Amani says this in a letter dated May 26.
Nomura kept the Philippines’ growth forecast at 4.6% this year, with a recovery to begin in the second half, after the latest government data showed an unprofitable growth.
According to the Bureau of the Treasury, the country’s budget balance increased to more than P31.4-billion in April from the P349.7-billion deficit seen in March. This was also less than the P67.3-billion surfeit recorded last year.
The government’s non-interest spending, or the total amount spent on interest payments, increased by 8.22% to P441.9 billion from P408.3 billion last year.
“This development follows a previous episode of severe austerity in 2011, which we called a ‘severe scenario’ against which today’s episode will be compared,” Nomura analysts said. “With the same playbook being used, growth in non-interest spending is likely to continue, helped in part by government spending programs.”
Mr. Paracuelles and Ms. Amani said that the recession expected to reverse later this year will allow the BSP to use its monetary policy tools especially to curb inflation.
The Monetary Board is scheduled to hold four regular policy meetings this year on June 18, August 27, October 22 and Dec. 17.
