THE Bangko Sentral ng Pilipinas (BSP) can afford to raise policy rates further as its real interest rate remains ‘accommodative,’ according to ANZ Research.
In its Asia Economic Outlook Q4 2026, the research arm of Australia-based ANZ Banking Group Ltd. said the BSP has been among the most hawkish central banks in the region since the escalation of the Middle East conflict in late February.
The Monetary Board, the BSP’s highest policy-making body, has delivered three quarter-point rate hikes, bringing the current target reverse repurchase rate to 5 percent.
‘However, the real interest rate is still within the accommodative zone, providing the BSP with adequate policy space for further rate hikes in case of upside risk to inflation,’ ANZ Research said. A real interest rate is the observed market interest rate with the rate of inflation removed from it.
As such, ANZ expects the central bank to increase policy rates by another 25 basis points in the fourth quarter of the year-pushing rates to 5.25 percent by year-end-as El Niño conditions put pressure on prices.
The BSP’s recent rate hike is a ‘preemptive monetary action’ against the threat of El Niño and wage increases, BSP Governor Eli M. Remolona Jr. said earlier.
While the BSP hopes that another rate hike won’t be needed, Remolona said, ‘We will tighten as much as we need to, to bring the inflation rate down to its target.’
Headline inflation slightly slowed to 6.1 percent in August, from 6.2 percent in July, as oil prices eased and provided little relief.
But as oil prices went up again, ANZ Research said this suggests renewed upside pressure on inflation.
‘At the same time, food inflation has strengthened on the back of higher rice prices, while emerging El Niño conditions remain an additional pressure point,’ it added.
Meanwhile, ANZ Research projects the overall current account deficit to widen to 4.5 percent of gross domestic product in 2026 from 3.5 percent a year ago.
The balance of payments deficit amounted to $5.3 billion as of July due to an expanded current account deficit.
Although revenues from the business process outsourcing sector will sustain the services surplus, pressure on the external account will persist for the rest of the year as oil prices have remained elevated, ANZ Research said.
With the peso has already fallen to historic lows, trading around P63 to the dollar in the third quarter, ANZ Research said the currency will reach P64 against the greenback by the end of the year.
‘The BSP has likely decided to preserve its FX reserves and reduce its intervention activity,’ it said. ‘The large external deficit, caused in part by high oil import costs coupled with the tightening in US Fed policy will likely see PHP depreciate to new lows.’