Peso to gain on expected BSP rate hikes

The Bangko Sentral ng Pilipinas (BSP) is expected to maintain its hawkish monetary policy stance, according to international lenders, though economists remain divided on how many additional interest-rate increases will be needed to combat persistent supply-side inflation.

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Japanese financial institutions MUFG Bank Ltd. and Nomura Holdings Inc., along with Wall Street giant Citigroup Inc., are projecting a cumulative 50 basis points (bps) of rate hikes in the coming months. The moves would lift the benchmark borrowing rate to 5.25 percent from the 4.75 percent level set during the June policy meeting.

“We continue to see the BSP hiking rates twice more this year for a total of 50 bps, with the rate at 5.25 percent by end-2026,” MUFG senior currency analyst Michael Wan wrote in a June 19 commentary.

Wan noted that local monetary authorities remain in tightening mode even after raising the policy rate twice since the United States—Iran war shocked domestic oil prices and the broader economy. He believes the sustained hawkishness of the BSP will help anchor the peso against the US dollar over the year ahead.

“We think the Philippine peso should be supported by a narrower trade deficit given lower oil prices and the US-Iran deal, the hawkishness from the BSP, and our expectation for further BSP rate hikes,” Wan said.