DESPITE the latest growth print disappointment, the central bank will be forced to continue hiking rates as the Philippine economy’s fight against inflation is far from over, according to analysts.
‘The Q2 GDP disappointment will unlikely derail [Bangko Sentral ng Pilipinas] BSP’s hiking cycle, in our view, because it remains focused on bringing inflation back to target over the policy horizon and anchoring inflation expectations, rather than supporting domestic demand,’ Japan-based Nomura Global Markets Research said in a report over the weekend after the Philippine Statistics Authority (PSA) released the second-quarter GDP data showing only a 2.3-percent growth.
Nomura also pointed out that the central bank may have also become vigilant over the ’emergence’ of new sources of inflation risk in the coming months, which it said ‘could coincide with a turnaround in fiscal spending.’
Nonetheless, with the output gap remaining ‘negative’ in the second quarter of 2026, the Japan-based research unit of Nomura Group said: ‘We believe BSP will likely maintain a measured approach to monetary tightening.’
Nomura maintains its forecast of another 50 basis points (bps) of BSP hikes this year, delivered in 25bp ‘clips’ over each of the next two meetings of the monetary board-in August and October.
Bank of the Philippine Islands (BPI) Senior Vice President and Lead Economist Emilio S. Neri Jr. said in a commentary over the weekend that recent policy actions suggest that the central bank is attempting to balance the need to bring inflation under control while avoiding a sharp slowdown in economic activity, resulting in a ‘gradual pace’ of tightening in recent months.
However, Neri pointed out: ‘A larger rate increase later in the year cannot be ruled out, particularly if the impact on El Niño on food prices proves more severe than currently anticipated.’
ANZ Research, for its part, said despite inflation moderating in July and with growth slowing, the pressure on the BSP to hike rates at this month’s monetary policy meeting will reduce.
However, the research unit of the Australia-based bank shared almost the same view as BPI’s lead economist, saying: ‘We expect inflation to remain elevated over the rest of the year, particularly as El Niño-related supply pressures begin to feed through to food prices.’
Further rate hikes after August ‘less clear-cut’
Other analysts stressed, however, that with the low domestic demand, there may no longer be ‘much room’ for the central bank to raise the key interest rate beyond the August rate-setting meeting of the Monetary Board.
United Kingdom-based research firm Capital Economics said the ‘weakness’ of the economy is likely to influence the thinking of the central bank as it weighs its next move.
‘The continued weakness of the economy means the case for further hikes is less clear-cut. But with inflation still well above target, we expect one more 25bps hike at the BSP’s next meeting on 27th August before it calls a halt to its hiking cycle,’ Capital Economics noted.
Domini S. Velasquez, Group Chief Economist of China Banking Corporation (Chinabank), said in a televised interview that the BSP may deliver ‘one more hike, especially with the GDP figure now.’
‘We know that the BSP is an inflation targeter. But sometimes, you know, these supply shocks, monetary policy cannot do anything about it, unless, you know, except anchoring inflation expectations. But in terms of low domestic demand, I don’t think there’s much room to increase. Maybe another last hike this end of August,’ Velasquez said.
The BSP has raised the key interest rate by a total of 50 basis points since the start of the conflict in the Middle East, delivering two separate quarter-point rate hikes at the Monetary Board’s rate-setting meeting held on April 23 and June 18.
These policy actions brought the Target Reverse Repurchase (RRP) Rate to 4.75 percent.
During its June 18 meeting, the Monetary Board decided that monetary policy tightening was ‘warranted’ to keep inflation expectations anchored and mitigate the risk of second-round effects.
‘The measured monetary policy action will also complement fiscal measures in supporting steady consumption and strengthening business sentiment,’ the central bank also said in a statement on June 18.
On August 7,2026, the Philippine Statistics Authority (PSA) reported that the growth of the Philippine economy in the second quarter eased to 2.3 percent from the 2.8 percent in the first quarter.
The latest reading was the slowest since the first quarter of 2021, when the economy contracted by 3.8 percent.