BSP seen raising rates again in next meeting amid quickening inflation

MANILA – The Bangko Sentral ng Pilipinas is expected to raise interest rates in October after quicker price increases and a slump in the peso renewed inflation worries, BMI Research said in a report.

BMI, which is a unit of Fitch Solutions, noted that headline inflation jumped to 7.2 percent year-on-year in September from 6.1 percent in August, exceeding market consensus and driven largely by surging food costs. This does not yet take into account the higher transport fares which were implemented at the end of September.

The research firm said it expects BSP to deliver a 25-basis-point rate hike at its next meeting, lifting its end-2026 policy rate forecast to 5.25 percent from 5 percent.

“Near-term inflationary pressures have intensified,” BMI said. It noted that prolonged US-Iran tensions will keep global crude prices elevated longer than expected, while a recent minimum wage hike in Metro Manila adds further upward pressure. BMI raised its full-year 2026 average inflation projection to 5.9 percent from 5.7 percent.

A weakening peso, trading near record lows around P62.71 per US dollar, has strengthened the case for central bank action to mitigate imported inflation, especially as the US Federal Reserve pursues further tightening.

Still, BMI highlighted that lackluster economic performance—underscored by contractionary manufacturing metrics in September—will restrict room for monetary tightening beyond October to avoid further damaging economic growth, which it forecasts at 3.3 percent for 2026.

The firm expects inflation to return to the central bank’s 2-4 percent target range by late 2027, opening a window for interest rate cuts toward the end of next year.

The BSP Monetary Board is set to meet again on Oct. 22 to decide on the direction of the country’s interest rates.