BSP Rate Hike Still Possible Amid Easing Inflation: El Niño, Oil Prices Key Concerns

MANILA, Philippines — Persistent risks from El Niño and volatile oil prices could keep further interest rate increases on the table despite easing inflation, although banks differ on whether the Bangko Sentral ng Pilipinas (BSP) needs to tighten policy again this year. BDO Unibank Inc. expects the central bank to hold its policy rate at five percent in October, but says weather disruptions and higher labor costs could still warrant one final increase. “We continue to expect the BSP to pause at the October meeting, while acknowledging that upside risks have not disappeared entirely,” BDO economist Alyssa Nuñez said in a note. Inflation slowed for a fourth consecutive month to 6.1 percent in August from 6.2 percent in July. It averaged 5.2 percent from January to August, still above the BSP’s two to four percent target. Core inflation, which excludes selected food and energy items with volatile prices to show underlying price pressures, also eased to 4.1 percent from 4.2 percent, its second straight monthly slowdown. Nuñez said the data increasingly reflected slower price increases across more goods and services, strengthening the case for a pause. However, she warned that El Niño-related supply disruptions and businesses passing on higher labor costs following Metro Manila’s minimum wage increase could generate more persistent inflation pressures. “If either risk starts to materialize before October, the case for a pause becomes considerably more difficult to justify,” she said. China Banking Corp. chief economist Domini Velasquez similarly expects the policy rate to remain at five percent, saying the BSP’s August 25-basis-point rate hike had largely anticipated emerging inflation risks. Nevertheless, Velasquez sees inflation picking up from September through November as comparisons with year-earlier prices become less favorable and El Niño pushes up prices and electricity rates. Velasquez also flagged volatile oil prices and a weaker peso, which makes imports costlier. Bank of the Philippine Islands lead economist Emilio Neri Jr., meanwhile, expects further tightening despite August’s slowdown. Neri said the BSP could raise rates by 25 basis points at each of its two remaining policy meetings this year, bringing the benchmark to 5.5 percent. Neri identified volatile oil prices and a potential super El Niño as major risks, with the weather event’s full impact possibly emerging in the first quarter of 2027. Additional increases would depend on El Niño’s severity, although BPI expects rates to remain steady for most of 2027.