S&P expects one more BSP rate increase this year

S&P GLOBAL RATINGS expects the Bangko Sentral ng Pilipinas (BSP) to deliver one more rate hike this year, warning that further monetary tightening could weigh on domestic demand over the medium term.

- Justine Irish D. Tabile and Aaron Michael C. Sy

“We think that modest further tightening is on the cards. We think the Philippines will end the calendar 2026 at a 5% interest rate,” S&P Global Ratings Senior Economist for Asia Pacific Vishrut Rana said in an interview on Money Talks with Cathy Yang on One News on Monday.

If realized, the forecast implies just one more 25-basis-point (bp) rate hike this year.

The BSP raised its policy rate by 25 bps to 4.75% on June 18, its second rate hike this year. It has three regular policy meetings left this year on Aug. 27, Oct. 22 and Dec. 17.

“In the Philippines, if you look at the roughly normal inflation level, that’s around 3%. So, when the interest rate is around 4.5%, 5%, then the real interest rate, the cost of funds in the economy is very high. It’s at 2%,” he said.

“That weighs on domestic demand. It would affect domestic demand adversely,” he added. “In our view, we think that the neutral rate for the Philippines would be closer to 4.5%, meaning cuts over forecast horizon rather than hikes.”

Mr. Rana said that if monetary policy has to be tighter for longer, this could trigger a downward revision to S&P's medium-term growth projection.

Last week, S&P cut its growth projections for the Philippines to 4.1% this year from 5.8% previously. This is within the recently revised 3.5%-4.5% growth projections of the Development Budget Coordination Committee.