Standard Chartered economists Jonathan Koh and Edward Lee expect the Bangko Sentral ng Pilipinas (BSP) to keep a hawkish stance even as Philippine growth softens. They say inflation is set to remain the main focus of policy.
They cite BSP projections that show a higher inflation path. BSP had previously forecast 2026 inflation at 6.3%, while April inflation was 7.2% year on year and above the BSP’s 5.6–6.4% range.
Inflation Remains The Key Policy Driver
They forecast a 50 basis point off-cycle rate rise before the June meeting. They link this to concerns about inflation expectations.
They expect rates to be reduced from Q2 2027 as inflation eases alongside softer growth. They project the policy rate will return to 4.5% by end-2027.
The date today is 2026-05-08T00:58:34.903Z.
We think inflation concerns will dominate near-term monetary policy, forcing the Bangko Sentral ng Pilipinas (BSP) to stay hawkish. The recent April inflation print of 7.2% was alarmingly high, and the BSP’s own revised forecast for 2026 now sits at 6.3%. This suggests that price stability is the central bank’s primary focus, even with signs of a cooling economy.
Market Implications For Rates And Fx
This view is strengthened by the recent Q1 2026 GDP figures, which showed growth slowing to 4.8%, down from the 5.5% we saw in the final quarter of 2025. Despite this slowdown, the latest consensus forecasts for May inflation are holding firm above 7.0%, putting immense pressure on the central bank to act decisively. The Philippine peso has reflected this pressure, weakening past 60.50 to the US dollar last week.
Therefore, we maintain our call for an off-cycle 50 basis point rate hike before the next scheduled meeting in June. The BSP Governor has repeatedly stated he will use all necessary tools to anchor inflation expectations, and we see this as the most likely next step. This is a pattern we observed in 2025, when the central bank often acted between meetings to control persistent price pressures.
For derivative traders, this points to positioning for higher short-term interest rates in the coming weeks. We believe paying fixed on 1-year and 2-year Philippine interest rate swaps is a clear strategy to pursue ahead of the expected hike. Traders should also consider buying short-dated call options on the Philippine peso to hedge against or profit from a potential relief rally in the currency immediately following a rate increase.
However, this aggressive stance is not expected to last indefinitely, as rate hikes will likely be reversed starting in the second quarter of 2027. Once inflation shows clear signs of easing back towards the target range, the softer growth backdrop will become the dominant policy driver. This suggests that while the front end of the yield curve will move higher now, the longer end may remain better anchored, anticipating future cuts.
