Standard Chartered economists Jonathan Koh and Edward Lee expect Bangko Sentral ng Pilipinas (BSP) to keep the policy rate at 4.25% in April, pushing a previously expected 25 bps increase to June. They still project one rate rise and have lifted their 2026 CPI inflation forecast to 4.5% from 4.0% after March inflation.
They note BSP may avoid tightening because March inflation was driven by supply factors, and the bank held rates at an off‑cycle March meeting. March inflation was 4.1%, above BSP’s 3.1–3.9% forecast range, while seasonally adjusted month‑on‑month core inflation followed its usual path.
BSP Monitoring Signals
They report that BSP is watching inflation expectations, core inflation, and prices faced by the bottom 30% of households. In March, inflation for the lowest‑income households was 4.2% year on year, close to the 4.1% headline rate, and expectations remain anchored.
They list risks that could raise pass‑through in coming months, including faster fiscal disbursements, possible transport fare increases, higher rice and restaurant prices linked to fertiliser costs, and imported inflation tied to the PHP. These factors could lift inflation expectations and lead to a one‑off hike.
The expectation is for the Bangko Sentral ng Pilipinas to hold its policy rate steady at its upcoming April meeting, pushing a potential 25 basis point hike to June. This creates a clear window for derivatives traders to position for a steeper yield curve in the coming months. The focus now shifts from the immediate decision to the forward guidance that will be provided.
With short-term interest rate swaps likely to remain anchored for now, we see an opportunity in trades that anticipate a hike in the third quarter. We remember the series of aggressive rate hikes throughout 2025, and this expected pause offers a temporary reprieve before that pressure resumes. Philippine 2-year bond yields have eased slightly to 6.25% this week, but forward rate agreements for June are already pricing in a higher probability of a rate increase.
Currency and Hedging Considerations
This delayed action could put modest downward pressure on the Philippine peso, especially as the US dollar remains firm. The peso has recently weakened past the 58.70 mark against the dollar, a key psychological level. Traders should consider using short-dated options to hedge against further peso depreciation ahead of the anticipated June move.
We believe a rate hike is not off the table, just postponed, because underlying price pressures are building. The latest data for early April showed inflation ticking up to 4.3%, driven by rising transport and food costs. These supply-side shocks are beginning to fuel broader price increases, which will likely force the central bank to act to maintain credibility.
