BSP Maintains Tightening Stance, Hints at 2027 Rate Cuts

The Bangko Sentral ng Pilipinas (BSP) has kept further rate hikes on the table after lifting the policy rate to 5.0%, while its low inflation scenario opens room for cuts in 2027. Around 70% of surveyed analysts still expect another 25-75bp of tightening this year before easing begins next year. We think the 2027 easing signal is conditional rather than a firm policy pivot. The BSP is effectively saying that cuts become possible only if inflation falls faster than its central forecast and moves closer to the 3% target, while weak growth and a wider negative output gap persist. A faster move toward the 3% target by 2Q27 could bring forward easing, while sticky oil, wages or El Niño would keep rates higher for longer. Every additional 25bp hike would further tighten domestic demand at a time when gross domestic product (GDP) growth is already weak. In our view, the near-term environment still favors rate-sensitive defensives and banks with stronger funding franchises rather than broad cyclical beta. Our base case remains one more 25bp hike this year, with a more durable market rerating likely once a credible 2027 easing cycle comes into view. Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise. The Philippine economy faces the dual challenge of controlling inflation and maintaining economic growth, making the central bank's monetary policy crucial. The movement of foreign direct investment (FDI) and the exchange rate of the Philippine peso will also be factors influencing these policy decisions. Particularly for the Philippine economy, which relies on remittances from overseas workers, the employment situation abroad and the favorability of their remittances to their home country should also be considered.