BofA sees more BSP rate hikes ahead as inflation stays elevated
THE BANGKO SENTRAL ng Pilipinas (BSP) may continue to tighten its monetary policy stance as inflation continues to run hot, even as the Philippine economy could stay sluggish until next year, according to the Bank of America (BofA).
October 8, 2026 | 8:05 pm By Katherine K. Chan, Reporter THE BANGKO SENTRAL ng Pilipinas (BSP) may continue to tighten its monetary policy stance as inflation continues to run hot, even as the Philippine economy could stay sluggish until next year, according to the Bank of America (BofA).
In a report dated Oct. 6, BofA Global Research said it now sees higher odds that the Philippine central bank will deliver more hikes as inflation stays well above its 3% target. “The impact of high inflation and weak growth does not make things easy for monetary policy,” it said.
“Still, given BSP’s inflation mandate and extended period of inflation remaining above its target, the probability of more rate hikes in the future has risen, in our view.” Fresh surges in fuel, food, housing and utility prices pushed headline inflation to accelerate to an over three-year high of 7.2% in September from 6.1% in August, matching this year’s peak first recorded in April.
This was sharply faster than the 1.7% clip seen in September 2025, and exceeded the 6.7% median forecast in a BusinessWorld poll of 22 analysts. Headline inflation has now held above the central bank’s 3% target for a seventh straight month. This also brought the year-to-date average to 5.4%.
Inflation is expected to remain elevated in the coming months, with National Statistician Claire Dennis S. Mapa noting persistent pressures from energy items and that the latest clip still does not account for the recent transport fare hike and the “Super El Niño.” Core inflation, which discounts volatile food and energy prices, also quickened to a nearly three-year high of 4.7% from 4.1% in the previ ous month and 2.6% a year ago.
“On inflation, the concerns are squarely pointing to the upside,” BofA Global Research said. “Unlike our previous visit in August, oil prices have been resurgent, and the hope of inflation peaking back in March appears low.” According to BofA, higher oil price assumptions may prompt the BSP to raise its inflation projections until 2027.
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Based on forecasts given in August, the central bank sees inflation setting at 6.1% this year before easing to 5.4% next year. “These assumptions, if revised higher, may see inflation seeing a second wind, and potentially charging both the peak and averages to move higher,” BofA said.
“If however, energy prices come off in (the) next few weeks, then the need to raise the forecasts may not be material.” BofA had previously expected the BSP to end its current tightening cycle after delivering its third straight 25-basis-point (bp) hike in August that raised the policy rate to 5%.
The BSP has so far delivered a total of 75 bps in rate increases since it began tightening in April, when inflation accelerated faster than it anticipated due to spillover effects from the Middle East war. BofA’s policy call came even as it expects tepid economic growth to last until next year due to muted spending and investments.
“Despite government spending picking up momentum, economic growth expectations appear a bit optimistic,” it said. “We continue to remain comfortable with our growth projections being sub 3% for 2026, but if the government’s plans to increase spending keeps gaining momentum, the outlook for 2027 could be better.” It sees the economy growing by 2.5% this year and 3.5% in 2027, which means the government could miss its annual targets for five straight years.
Economic managers are targeting 3.5%-4.5% gross domestic product (GDP) growth this year and 5%-6% in 2027-2030. GDP growth averaged 2.6% in the first half after slumping for a fourth consecutive quarter to a new post-pandemic low of 2.3% in the April-to-June period. This came as investments and public construction continued to take a toll from the flood control mess while household spending dampened amid the Middle East war.
For BofA, further BSP rate hikes may be warranted despite the lackluster growth, especially with the US Federal Reserve now also on a tightening path. “While BSP has already hiked thrice this year taking the rate to 5% in line with our current terminal rate expectations — we may need to revisit this given upside risk to inflation coupled with potential for further tightening by the Fed,” it said.
The Fed in September lifted its federal funds rate by 25 bps to the 3.75%-4% range to mark its first hike in three years. The US central bank said in its meeting minutes released late on Wednesday that another quarter-point rate hike is likely this year as its of f icials seek to rein in infla tion.
“In case the BSP ends up hiking aggressively, and eventually as inflation falls aggressively, the reversal of the cycle sometime in 2027 or 2028 could be equally sharp as well, but contingent on inflation coming off sharply as BSP projects,” BofA added. The BSP’s Monetary Board will hold its next rate-setting meeting on Oct.
22, while the Fed is set to announce its next policy decision on Oct. 28.
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