BSP seen hiking rates by 25 bps in December—think tank

MANILA — The Bangko Sentral ng Pilipinas (BSP) may raise rates by another 25 basis points (bps) in December, Fitch Solutions unit BMI said Friday.

The BSP raised interest rates by 50 bps to 5.5 percent on Thursday, citing heightened inflation risks.

In its latest report, BMI said it shares the BSP’s concerns about the spillover of inflation from higher global energy prices and recent fare hikes, and the possibility that food prices may rise because of El Niño.

The think tank also said the peso’s weakness is another reason for further rate hikes.

The peso sank to a new record low of P63.52 against the dollar on Thursday, October 22.

“The currency remains one of the worst-performing currencies in Asia year-to-date, behind only a battered Indonesian rupiah,” BMI said of the Philippine peso.

“With a more hawkish US Federal Reserve and higher oil prices, we now expect the peso to trade around P63/USD by end-2026, from P61/USD previously. A December rate hike would help cushion some of the currency headwinds and limit the spillovers from imported inflation,” the think tank explained.

BMI said Philippine economic headwinds will keep the Central Bank on a prolonged hold.

“Elevated inflation through (the first half of) 2027 will continue straining household finances and limit consumption, while the cumulative effects of monetary tightening will increasingly weigh on spending and investment,” it said.

Bangko Sentral governor Eli Remolona, however, has said the bank is not hiking the policy rate to defend the peso.

“We do intervene a little bit in the foreign exchange market, but that’s mainly to avoid swings in the exchange rate that tend to be inflationary,” Remolona said. 

“We have estimates of how much the peso has to move before it becomes inflationary, and that’s when we tend to intervene.”

“We don’t use up, we kind of come in without using up too much of our reserves, and we end up just dampening the swing in the peso. We don’t end up preventing the peso from depreciating,” he said.