Philippines: One more BSP hike expected in October – Standard Chartered | FXStreet

MANILA — In a notable shift in monetary policy outlook, economists at multinational banking giant Standard Chartered have revised their projections for the Philippines, now anticipating the Bangko Sentral ng Pilipinas (BSP) to execute one final interest rate hike before pausing its current tightening cycle.

According to a freshly released research note authored by Standard Chartered economists Jonathan Koh and Edward Lee, the central bank is widely expected to lift its benchmark reverse repurchase rate by 25 basis points (bps) to 5.25% during its upcoming monetary policy meeting in October. This represents a departure from the bank’s previous baseline scenario, which anticipated that the BSP would opt for an extended hold following a prolonged period of aggressive monetary tightening.

The upward revision is driven by a confluence of intensifying macroeconomic headwinds, including sticky core inflation prints, a resurgence in global crude oil prices, and persistent depreciation pressures weighing heavily on the Philippine Peso (PHP). Furthermore, external pressures—spearheaded by the U.S. Federal Reserve’s ongoing policy maneuvers and a broader global tightening trend—have further narrowed the policy room available to domestic monetary authorities.

Despite the anticipated near-term tightening, Standard Chartered maintains a longer-term horizon that points toward eventual monetary easing, projecting that the central bank will likely pivot toward rate cuts by the third quarter of 2027 once domestic inflation decisively re-enters the official target band.

Main Facts

The core takeaways from Standard Chartered’s updated macroeconomic assessment for the Philippines highlight a tightening bias driven by both domestic realities and external shocks:

• Policy Rate Forecast Revision: Standard Chartered has formally abandoned its previous call for a policy rate hold, upgrading its end-2026 terminal rate forecast for the BSP from 5.00% to 5.25%.
• The October Hike: Economists Jonathan Koh and Edward Lee predict a 25-basis-point rate increase at the Monetary Board’s October meeting, bringing the benchmark policy rate to 5.25%.
• Primary Catalysts: The decision to alter the forecast stems from a combination of broader-than-expected September inflation figures, surging global oil prices, and the continued depreciation of the Philippine Peso against the greenback.
• External Pressures: The U.S. Federal Reserve’s aggressive stance, highlighted by its September policy adjustments, alongside tightening cycles from peer emerging market and advanced economy central banks, has amplified the necessity for domestic preemptive action.
• Growth vs. Stability Trade-off: The anticipated hike comes even as domestic economic growth indicators remain relatively soft, underscoring the BSP’s primary mandate to anchor inflation expectations and defend foreign exchange stability.
• Long-Term Easing Horizon: Standard Chartered continues to project that the BSP will initiate a monetary easing cycle starting in the third quarter of 2027, predicated on the assumption that inflation will have sustainably stabilized within the government’s target range of 2.0% to 4.0%.

Chronology of the Policy Pivot

To understand how Standard Chartered arrived at its current forecast, it is essential to trace the trajectory of the Philippines’ macroeconomic environment and the corresponding evolution of central bank communications over the past several quarters.

Late 2024 to Mid-2025: The Prolonged Pause

Following a historic and aggressive cycle of monetary tightening designed to combat post-pandemic inflation spikes—which saw the BSP’s policy rate peak at elevated levels—the central bank transitioned into a prolonged pause. Throughout late 2024 and much of 2025, Governor Eli Remolona Jr. and the Monetary Board signaled that monetary policy had achieved a sufficiently restrictive stance to bring inflation back to target. During this phase, consensus among major institutional forecasters, including Standard Chartered, pointed toward an extended period of stable interest rates, with expectations leaning heavily toward when, rather than if, the central bank would begin cutting rates to support softening domestic output.

Mid-2025: Emerging External Fractures

By the middle of 2025, however, external economic conditions began to shift. Stubbornly resilient consumer price indices in the United States forced the U.S. Federal Reserve to recalibrate its own timeline, dampening global hopes for rapid monetary easing. Concurrently, geopolitical tensions in the Middle East and supply chain frictions led to renewed volatility in international energy markets. For an import-dependent economy like the Philippines, these global developments immediately translated into imported inflation risks.

Late 2025 (September): The Turning Point

The tipping point for institutional forecasters arrived in September 2025. A cluster of economic indicators painted a more complex and challenging picture than anticipated:

1. Core Inflation Uptick: Core inflation prints—which strip out volatile food and energy items—began to edge upward, signaling broadening price pressures rather than isolated supply shocks.
2. Oil Price Rebound: Global crude oil prices experienced a sudden upward correction, placing renewed strain on domestic transport, logistics, and manufacturing costs.
3. Currency Depreciation: The Philippine Peso faced renewed downward momentum, driven by a strengthening U.S. dollar and shifting global capital flows, which heightened the risk of imported inflation filtering through consumer goods.

It was against this backdrop that Standard Chartered economists re-evaluated their baseline models, ultimately concluding that the central bank’s current policy rate of 5.00% would be insufficient to insulate the economy from these compounding pressures, prompting the October rate hike forecast revision.

Supporting Data and Economic Indicators

The analytical framework underpinning Standard Chartered’s revised forecast is rooted in a rigorous examination of key macroeconomic variables currently shaping the Philippine financial landscape.

Inflation Dynamics and Core Pressures

While headline inflation figures had previously shown signs of converging toward the BSP’s target band of 2% to 4%, recent data revealed underlying stickiness. Core inflation—monitored closely by economists as a truer gauge of domestic demand-pull price pressures—demonstrated unexpected resilience in September. This stickiness suggests that consumer demand remains robust enough to absorb price increases, complicating the central bank’s exit strategy from tight monetary policy.

Energy Markets and Commodity Imports

As an economy heavily reliant on imported petroleum products, the Philippines remains acutely vulnerable to shifts in global energy benchmarks such as Brent and Dubai crude. The recent rebound in oil prices has directly impacted domestic pump prices, electricity generation costs, and public transport fares. These cost-push factors threaten to unhinge inflation expectations, creating a scenario where preemptive monetary tightening becomes necessary to prevent a secondary round of price hikes, such as wage adjustments.

Foreign Exchange and the Philippine Peso (PHP)

The performance of the Philippine Peso has been another critical variable in the equation. Persistent dollar strength, fueled by higher-for-longer interest rates in the United States, has exerted continuous depreciation pressure on the local currency. A weaker peso increases the peso-denominated cost of imported goods, raw materials, and debt servicing. To mitigate capital outflow risks and defend the domestic currency against excessive volatility, the BSP faces an imperative to maintain an attractive interest rate differential vis-à-vis major global economies, chief among them the U.S. Fed.

Growth Realities vs. Price Stability

The decision by Standard Chartered to project a rate hike in an environment of soft economic growth underscores a classic central banking dilemma. Domestic economic expansion has shown signs of moderation, weighed down by high borrowing costs and subdued consumer sentiment. Traditional economic theory suggests that soft growth warrants monetary easing; however, in emerging markets facing external currency and inflation shocks, price stability must take precedence. Allowing inflation to breach targets or permitting disorderly currency depreciation can inflict long-term damage on the economy that far outweighs the short-term benefits of a rate cut.

Official Responses and Stakeholder Perspectives

As market participants digest Standard Chartered’s updated outlook, reactions from various stakeholders highlight the delicate balancing act facing Philippine monetary authorities.

Bangko Sentral ng Pilipinas (BSP) Stance

Governor Eli Remolona Jr. and members of the Monetary Board have consistently emphasized a data-dependent approach to policy formulation. In recent public engagements, central bank officials have reiterated that while the worst of the domestic inflation crisis has passed, upside risks remain firmly entrenched. The BSP has explicitly stated that it stands ready to adjust policy settings if incoming data—particularly regarding inflation prints, exchange rate movements, and global commodity trends—warrants a response.

While the central bank has not pre-committed to an October rate hike, market watchers note that its communications have retained a distinctly hawkish tilt, leaving the door wide open for a final 25 bps move should incoming September data confirm the trends identified by private sector forecasters.

Business and Industrial Sectors

The Philippine business community has expressed mixed reactions to the prospect of prolonged high interest rates. Representatives from micro, small, and medium-sized enterprises (MSMEs), which form the backbone of the domestic economy, have voiced concerns that an additional 25 bps hike could further suppress consumer spending and elevate debt servicing costs.

Conversely, large corporate conglomerates and manufacturers have acknowledged the necessity of a stable macroeconomic environment, noting that unchecked currency depreciation and runaway inflation pose a far greater threat to corporate planning and profitability than a measured, terminal adjustment in benchmark interest rates.

Financial Markets and Foreign Investors

Foreign institutional investors and domestic fixed-income traders have largely viewed Standard Chartered’s revised forecast as a pragmatic adjustment to changing global realities. A higher terminal rate of 5.25% provides additional support to local yields, making Philippine government securities more attractive to offshore investors seeking yield in an uncertain global environment. Equity markets, however, have traded with a degree of caution, as higher interest rates typically compress equity valuations and increase funding costs for listed corporations.

Implications for the Broader Economy

The projection that the BSP will deliver one final rate hike before holding rates steady through late 2026—followed by an anticipated easing cycle in the third quarter of 2027—carries profound implications for various segments of the Philippine economy.

1. Credit Markets and Borrowing Costs

For consumers and corporate borrowers, the implication is clear: cheap credit will remain elusive in the near term. Commercial banks are expected to adjust their lending rates upward in lockstep with the projected 25 bps policy rate increase. Prospective homeowners, auto buyers, and corporate expansion planners will need to factor higher borrowing costs into their financial models for the remainder of 2025 and well into 2026. This environment is likely to subdue credit growth, particularly in interest-sensitive sectors such as real estate, automotive, and retail consumer goods.

2. Foreign Exchange Stability

By raising the policy rate to 5.25%, the BSP signals its commitment to maintaining favorable interest rate differentials against major foreign currencies. This move is expected to cushion the Philippine Peso against sharp speculative attacks and mitigate imported inflation pressures. For importers and businesses with foreign-currency-denominated debt, a stabilized peso provides a much-needed degree of predictability in cost management.

3. Medium-Term Economic Trajectory

Looking further ahead, Standard Chartered’s projection of a policy pivot in Q3-2027 offers a clear light at the end of the tunnel. Once global supply chain pressures fully dissipate, domestic inflation anchors itself comfortably within the 2% to 4% target band, and the U.S. Federal Reserve completes its own easing cycle, the BSP will possess the requisite policy space to support a sustained economic recovery through lower interest rates.

Until that pivotal juncture arrives, however, the Philippine economy must navigate a final stretch of monetary tightening. The upcoming October Monetary Board meeting will serve as a critical litmus test for whether the central bank aligns with Standard Chartered’s revised assessment, setting the tone for the nation’s financial trajectory as it closes out the year and prepares for the economic landscapes of 2026 and beyond.