Philippines: BSP steps up rate defence as challenges mount
Surprise 50 bps hike.
Group Research - Econs, Radhika Rao23 Oct 2026
Article image
Photo credit: Unsplash/Adobe Stock Photo
Read More

The BSP surprised with a 50bp hike to 5.5% on Thursday, as the authorities seek to restrain inflationary expectations and defend the currency. Since Jan26, the benchmark rate has been raised by 125bp. Rising by the highest pace in Asia, Philippines inflation surged to 7.2% y/y in September from 6.1% in August, matching this year's peak and approaching a three-year high, owing to public transport fare adjustments, elevated oil prices, recent wage hikes and peso depreciation. The impact is disproportionate on the lower income households, with effective inflation for the bottom 30% of the households at an elevated 9% yoy from average 2.8% in 1Q26. In the near-term, policymakers point to transport, oil and food (El Niño conditions also continue to pose a risk to agricultural production and prices) as key factors contributing to the upside in inflation. Average headline inflation is expected to remain high in 2027, before easing towards the 3% target in 2028. Fiscal space is, meanwhile, limited to support households, via subsidies and/ instate price caps. The cumulative 9M26 budget deficit remained above target, despite revenue growth outpacing expenditure during this period.

Recent sharp peso depreciation also likely strengthened the central bank’s resolve to frontload policy tightening measures. Governor Remolona reiterated that the BSP did not target a specific level for the peso, though he acknowledged that a weak currency magnified imported pressures. The peso has depreciated 1.4% this month against the dollar and ~7.4% year-to-date, to remain as one of the regional underperformers. Commentary remains hawkish as the BSP continues to reiterate its hawkish bias. With oil prices proving to be sticky at highs and global food price indices inching up, domestic inflationary pressures are likely to be persistent. The likelihood of further hikes in 4Q26 and early 2027 has increased; we build in the likelihood of 50bp more hikes by mid-2027.

Radhika Rao

Senior Economist – Eurozone, India, Indonesia
radhikarao@dbs.com
Subscribe here to receive our economics & macro strategy materials.
To unsubscribe, please click here.

Topic

Disclaimers and Important Notices

GENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates, Digital Assets or Commodities)[1]

The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation.  Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies.  The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation.  The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.

[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.

DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. 

DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability.  18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability.  11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.


[1] This disclaimer may not apply if the applicable assets fall within the definition of  'financial instruments' that are set out in Article 2(1) EU MAR (e.g. financial instruments that are traded on a regulated market, MTF or OTF, etc.). Section C of Annex I of MiFID2 specifies these 'financial instruments'.